Melco Resorts Calls Hot as Macau Data Drops Stock

One options bull may be lowering their expectations

Casino stocks are spiraling today, after Macau gaming revenue growth missed analysts' estimates for a second straight month in June. One name seeing heavy selling is Melco Resorts & Entertainment Ltd (NASDAQ:MLCO), and options traders have been quick to respond.

At last check, MLCO stock is down 10.6% to trade at $24.77, and more than 30,000 options have changed hands -- six times what's typically seen. Most of the action is occurring on the call side, due to what may be a possible roll down of some October calls.

Specifically, 10,000 October 30 calls were sold earlier at the same time 5,000 October 28 calls were opened. Trade-Alert suggests the higher-strike calls are being closed, while the lower strikes are being opened. If this is the case, it's possible an options trader is lowering their bullish expectations for Melco Resorts.

Today's call-skewed trading just echoes a broader trend in MLCO's options pits. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.17 ranks in the 4th annual percentile, meaning short-term speculators are more call-heavy than usual among options expiring in the next three months.

Elsewhere on Wall Street, there are signs of growing skepticism toward the casino stock. In fact, after holding near a record high in mid-May and early June, short interest has more than doubled to 3.13 million shares. These bearish bets still only account for just 1.2% of MLCO's available float, though.

Looking at the charts, Melco Resorts spent most of the past year in a strong uptrend, surging more than 68% from its August low south of $20 to its May peak near $33. However, the shares have been selling off since that recent top, likely due to increased selling pressure from shorts.

These bearish bettors are sidelined through the Fourth of July holiday, though, with the stock's 10.9% drop today earning it a spot on the short-sale restricted list. And based on its current perch, MLCO shares are also on track to close below their 320-day moving average for the first time since Dec. 20, 2016.