Casino stocks are rising

Gaming stocks have far outpaced the S&P for 2017, and over the past year have returned mid to high double digit profits. The risks of China experiencing a major deceleration have been tempered, and thus the outlook on the growth and health of the gaming market in Macau seems to be more favorable today than appeared 6-12 months ago. The 2016 US presidential election hasn't produced much in terms of headwinds for the gaming and casino market, however a travel ban or difficulty in foreigners visiting the US may create some headlines in the next few quarters.

One stock that appears to be performing exceptionally well is MGM Resorts International (MGM). The stock us up 59% over the past 12 months, and is close to its 52 week high just under $34/share. What makes MGM even more interesting is the following items:

- MGM's size and scale is dominant in the industry, and their loyalty program is second to none in terms of properties, access and customer insights
- They recently announced a $475M debt paydown to strengthen the balance sheet, and improve their credit rating
- MGM trades at a P/E of 15.8 vs LVS at 28 and WYNN at 52. Short interest in MGM is around 2% which is very respectable
- MGM pays a dividend of roughly 1.3% per year

Gaming stocks are certainly susceptible to market risks and trade at a higher Beta than the market, MGM has a beta of 1.59, so downside risk would be amplified in a market correction.

We are buying the September 2017 $35 Calls for $1.31, and selling the $29 Puts for $0.42 to help finance the Calls. The net trade will cost us $0.89, and we are looking at this as a short term trade.