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What's behind big put activity in MGM

Chris McKhann (chris.mckhann@optionmonster.com)

MGM Resorts is holding its gains from last week, but today's option activity is led by a surge in puts.

MGM is a penny to $11.15 in early afternoon trading. Shares of the casino operator have been range-bound between $10.20 and $11.60 for the last six weeks after falling from resistance around $15.

optionMONSTER's systems have detected a trade involving 6,377 each of the July and August 15 puts, with both contracts going $3.85. The action in July was less than the open interest, so it could have been an opening or closing transaction.

It appears that the trader is rolling an in-the-money put position out from July to August for even money. What is not exactly clear, however, is if the resulting position is long or short .

Traders use in-the-money puts for a variety of reasons. Being long such puts is a good proxy for short stock, as they can participate in a drop essentially dollar for dollar but do not carry as much risk. Shorting such puts suggests the trader sees little downside risk and is looking to collect the premium if shares climb. (See our Education section)

More than 16,000 MGM options have already changed hands today, almost twice their total daily average.

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