Sogotrade’s options specialists detected the purchase of about 5000 October 17 International Game Technology (NYSE:IGT) calls for $1.75 against open interest of 2,038 contracts. The implied volatility on this large option trade was nearly 32.5%. There was also a purchase of 3,000 October 18 calls for $1.25 against open interest of only 724 contracts. The implied volatility on this trade was nearly 30.5%. These volatility purchases are not that far away from the 52 week implied volatility low of 27.40% recently tagged in late April, and nearly 40% lower than the 52 week IV high of 52% reached last May. These trades accounted for almost all of the options activity in the gaming manufacturer on Monday.
-There are three possible catalysts for these large trades:
1) Protection - A large institution is protecting their short position in IGT against some unexpected upward move. This protection expires in mid October and protects the buyer against unexpected turnaround in the slumping gaming manufacturing business.
2) Turnaround - A speculator believes that there is a turnaround brewing in IGT and is banking on a minimal upward move of 8% between now and October expiration.
3) Implied Volatility trade - A trader has made a bet that the implied volatility is oversold and due for a bounce. The trader has taken advantage of extremely depressed implied volatility to buy some ‘cheap’ IGT October options.
International Game Technology (IGT) is a global designer of games built for standalone gaming such as those used in casinos and games for the computer and mobile users. Most famous for manufacturing slot machines, the company’s stock has been channeling between $15 and $19 for the past 8 months. On April 24th, the company beat earnings expectations and raised guidance, gapping the stock up by 9.7% in one day, boosting it from $16.35 to $ 17.85. A few days later, the company announced a major contract deal with Caribbean CAGE LLC to supply them with a couple thousand video lottery terminals throughout the Caribbean and the Dominican Republic. This pushed the stock higher, tipping at $18.60. The stock has since pulled back slightly and is currently trading at a comfortable $17.60.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.