The entire gaming sector got a boost today due to a report from the ratings agency Fitch. Fitch Ratings forecasts solid revenue trends for casino-hotel properties on the Las Vegas Strip as non-gaming amenities continues to drive growth. Properties on the Las Vegas Strip now generate more than 60% of their profit from non-gaming amenities. Fitch says the trend supports the view that Strip resorts are real estate investments and should trade with REIT-like multiples. They are also seen as more attractive than some regional casino stocks in a recession due to the diversified income streams. Now we have earnings release for Las Vegas Sands (LVS) on Tuesday morning. We have a strong fundamental story outlined above and an earnings picture that is marred only by the last earnings which took the stock down about 9%. Other than that, it’s largely a non-event. What’s the take away? It tells me that earnings are not the biggest driver of this stock and that we should look to take advantage of the time structure that is in backwardation because of earnings. Add to that, technically the stock broke through resistance. This was our signal:
Entry Signal: LVS Call Calendar 7-25-16
7-25-16: Based on our methodology a signal has been generated:
Sell (opening) the LVS July 29th WE 51 strike call
Buy (opening) the LVS Regular August expiration 51 strike call
For a debit of $0.30 or less.
This signal is not GTC, is a DAY ORDER ONLY and is valid
Here’s the risk chart:
You see that if we move down slightly, we will lose about 50% of our invested premium. But, as we talked about above, the technicals and fundamentals lead us to take a harder look at what the measured move is predicted by the implied volatility which points to a move of 6%. In addition, let’s say that earnings don’t go very well, the weekly options will go out worthless. This leaves us an ace in the whole with our long August call. The stocks in this sector are highly correlated. Even with unfortunate earnings, the stock may trend up over the next month.
