Traders bet on MGM just as plane safety threatened

Dec 29, 2009 3:09 AM

Just days after traders made a big wager on an improved share price for MGM MIRAGE Inc. (MGM), a terrorist act on a transatlantic flight into the U.S. caused the nation’s focus to be on the safety of air travel.

That didn’t help the share prices of Las Vegas gaming companies, although Monday’s market moves were generally modest.

Over the weekend, analysts were studying the impact of options traders who pre-holiday had made major investments in call options for MGM. One trader reportedly acquired nearly 20,000 January 2011 $20 calls at an average cost of $0.70. This, and other trades, boosted the average activity in the calls by 12-fold.

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The aggressive play was viewed by some as a view that the MGM MIRAGE shares had hit "rock bottom" while others saw it as a reaction to the hype that has accompanied the recent opening of the company’s $8.5 billion Aria complex.

The new destination resort is expected by MGM management to be a prime reason for increased tourism to Las Vegas in 2010, with estimates ranging from a boost of six to 10 percent.

Analysts have been mixed in their estimates of the Aria impact with some agreeing with management and others suggesting the new facility will either cannibalize its other properties such as Bellagio and Mirage or will reduce the recent interest that travelers have shown in the Wynn Resorts (WYNN) or those operated by Las Vegas Sands (LVS).

As for MGM’s balance sheet, analysts have estimated that the company will trim its annual loss to $0.52 a share in 2010, down from this year’s $0.72 per share. Also the company will be looking to reduce its long-term debt load estimated at $13 billion.

At the close of trading Monday, MGM shares were priced at $9.36, down $0.14 for the day.