by David Russell
Melco Crown Entertainment (MPEL) has been rallying for months, and one investor is looking for the shares to hold their ground.
optionMONSTER's tracking systems detected the sale of 5,000 July 6 puts for $0.40 against open interest of 840 contracts. The trade investor will get to keep that premium as long as the Asian casino operator remains above the strike price through expiration.
MPEL rose 1.76 percent to $6.95 yesterday and is up 64 percent in the last six months. The stock traded at a steep discount to rivals over the summer but then started rallying as new properties in Macau came online.
Sentiment has been weakening in the casino sector in recent months, however, as investors take profits in rivals such as Las Vegas Sands and MGM Resorts.
Implied volatility has also been elevated at about 54 percent in MPEL, while realized volatility has been about 40 percent. This means that options are expensive relative to the stock's propensity to move.
Traders often sell puts to exploit rich implied volatility. It's also a way to collect income from a stock an investor may like but doesn't want to expend cash to buy. The benefit of the strategy is that it doesn't require shares to rise to make money, but it does have downside risk.
Overall option volume in MPEL was 5 times greater than average yesterday.