Covered Calls Established in MGM Resorts International

This morning a Covered Calls position was established in MGM Resorts International (ticker MGM) when 400 shares were purchased at $35.21 and 4 September 2nd, 2022 Call options were sold at $2.73 at the $33.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.52 per share [$2.73 Call options premium - ($35.21 stock purchase price - $33.00 strike price)].  The $.52 per share will be profit if the stock remains above the $33.00 strike price (and therefore assigned) on the Sept 2nd.  There is no ex-dividend and no earnings report prior to the options expiration date.

Given the Covered Calls Advisor's current Bearish Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 76.3, which closely approximates a 76.3% probability that the Call options will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was high at 42.8 when the position was established (well above the current VIX of 20.2), so the options premium received for selling this Call was very attractive. 

MGM Resorts International is a leading owner and operator of casinos, hotels, and entertainment resorts.  Their stock is trading near pre-pandemic levels but they are now poised to benefit from the several future growth opportunities that senior management is pursuing.  These include a fully re-opened (after Covid restricted) Las Vegas, recent removal of capacity restrictions at their regional properties, BetMGM is a strong market participant in the rapidly growing online sports betting and iGaming markets, and re-opening from Covid restricted (hopefully in the near future) of their China casinos.  

Their current stock valuation seems attractive since (1) their current free cash flow yield of 9.2% is the highest in the past decade, thus enabling them to make strategic buybacks and debt reductions; and (2) Analysts' average target price is $52.34 which is +48.7% above today's purchase price. 

Some key numbers for this MGM Resorts International Covered Calls position are:
Covered Calls Cost Basis: $12,994.68
Profit if Assigned on Expiration Date: $205.32
Days Until September 2nd, 2022 Options Expiration: 17
Absolute Return-on-Investment if Assigned at Expiration: +1.6%
Annualized Return-on-Investment if Assigned at Expiration: +33.9%

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net