MGM Analysis

MGM Resorts International (MGM)

Update 2/12/2018: MGM began its downtrend on Jan. 29, three days after the blue-chip indexes joined in and has followed an identical Elliot wave pattern, placing it in an upward correction within a larger downtrend.

I exited on a bull signal from the 3-hour Fisher Transformer (FT), choosing to exit without waiting for a 1-day FT signal because the position had already exceeded my management level of half of potential profit. 

As it turns out, when I exited for a $-0.24 debit with shares at $33.34, it was at 64.2% of maximum profit, which I consider to be a rousing success.

I count the wave as a 4th wave to the upside. Since the 2nd wave in the pattern was a highly directional zig-zag, the 4th will tend to be more of a sideways pattern. “Tend” in this case doesn’t mean “always”; there are exceptions.

Shares declined by 5.1% over seven days, or a -266% annual rate. The options position produced a +179.2% return for a +9,342% annual rate.

I shall next revisit MGM prior to its next earnings announcement.

I have entered a bear call vertical spread on MGM, using options that trade for the last time 18 days hence, on Feb. 23. The premium is a $0.67 credit and the stock at the time of entry was priced at $35.13.

I made the decision to enter the trade in my account based on the Fisher Transform and expectations of a negative earnings surprise..

MGM publishes earnings on Feb. 20 before the opening bell.

Implied volatility stands at 37%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.

MGM’s IV stands above 72% of the symbol’s IVs of the past year, and at the peak of its most recent broad movement.

The price used for analysis was $35.01.

Premium: $0.67 Expire OTM  
MGM-bear call spread Strike Odds Delta
Long 37.50 79.3% 23
Break-even 34.83 68.5% 35
Short 35.50 57.6% 46

The premium is 67% of the width of the position.

The risk/reward ratio is 2:1.

The bid/ask spread was 7.4%.

By Tim Bovee, Portland, Oregon, Feb. 5, 2018


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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