Market Overview

Large Option Trader Dumping International Game Technology Calls Ahead Of Earnings

Large Option Trader Dumping International Game Technology Calls Ahead Of Earnings

International Game Technology PLC (NYSE: IGT) shares traded higher by 2.2% on Tuesday ahead of the company’s second-quarter earnings report expected out Aug. 1, but at least one large option trader is betting a longer-term IGT rebound is not in the works anytime soon.

The Trade

On Tuesday, Benzinga Pro subscribers received an options alert related to an unusually large IGT option trade.

At 10:19 a.m. ET, a trader sold 1,000 IGT call options with a $14 strike price expiring on Jan. 17, 2020 at the bid price of 97.5 cents. The trade represented a bearish bet worth $97,500 that IGT shares will be trading below $14.975 in roughly six month’s time.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the IGT option trade, it’s unlikely to be an institutional hedge.

No Rebound In Sight?

IGT shares are down nearly 50% from their 52-week highs above $26, but the call seller on Tuesday seems to believe the stock won’t be getting another whiff of the $20 level through the end of 2019.

IGT reported earnings misses and declining sales in each of the last two quarters, sending the stock tumbling. Without any major new casino projects in the works or the potential for machine upgrades in the gaming industry, the outlook for gaming equipment is lackluster at the moment. IGT bulls had hoped U.S. legalization of sports gambling would be a catalyst for the stock, but sports betting has yet to may a meaningful impact on IGT’s numbers.

In the meantime, the company reported net debt of $7.71 billion last quarter, and the company’s long-term debt-to-equity ratio stands at a bloated 3.68. Given declining sales and a troubled balance sheet, there are simply better places for investors to focus in the market for now.

The good news for IGT bulls is that given the break-even price for the calls sold is $14.975, about 13.4% above Tuesday’s trading price, the sale isn’t necessarily an extremely bearish play.

Stock traders will be watching the option market closely throughout the next week for additional insight into IGT’s upcoming earnings report. Analysts are expecting second-quarter revenue to decline 4.2% to $1.15 billion on flat EPS of 28 cents.

The stock traded around $13.21 at time of publication.

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