Melco Resorts vols are dirt cheap

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

November 26, 2023

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

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Hey Trader,

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(Ticker: MLCO) Melco is the storied property in Macau of the legendary gamer Stanley Ho.

That was when gaming meant you ran casinos not sat at home on a laptop.

Anyway the biggest customer base for MLCO is China.

And COVID, property busts and general economic malaise has hurt gaming customers’ pocket books.

Post-COVID I thought MLCO would jump out of the blocks but most equities connected with China have done poorly lately.

The graph below is clear on that with MLCO running at lows of the year.

MLCO 1 Year chart with 1 day candles

You are here for a vol analysis and vol you will get.

Vol levels are kind of surprising with MLCO this low.

Low stock prices and Low implied vols generally show little interest
Most implied vols across the vol surface are very low. The vol surface is just all strikes and all terms for a given name. The name I am looking at is MLCO.

Note the 30 Day IV and 60 day IV are very near the bottom of the range.

90 day realized vol is like my “fair value” for mid term option trades. That number has been climbing of late as MLCO moves around a bit more.

Volume has jumped lately. Mark and I saw some volume in Delta Strike this last week. Large call buyers in Mar 8.5s.

With IV this cheap, i think straight call buying is the way to go if you think the China situation has stabilized. With options so low, instead of buying 100 shares, 3 calls would give 3x the leverage for a fraction of the price. That is a wager Stanley would like.