Traders try to get lucky in this casino stock

Caesars Entertainment has been battered by the market for much of the first quarter of this year. But in the past two days, the stock has rallied and some traders are placing bets the shares will go even higher.

After falling 33 percent since the start of the year, shares of the troubled casino saw a 10 percent bounce over the past four days. And on Tuesday, options traders threw their chips down on the table, betting Caesars will rally another 4 percent by the end of next week.

Tuesday's session saw heightened activity in the options market for the stock. Some 22,000 options were traded, about 4.4 times the average daily volume. The vast majority of those options, about 15,000, were calls. A call is a bullish wager giving the purchaser the right to buy a stock within a given time.

About half the calls traded Tuesday were the 10.50-strike calls expiring on April 10. A total of 7,653 of those contracts traded with an average price of around 50 cents, meaning the buyer is expecting Caesars to move above $11, or 4 percent higher within a week and a half. Since each contract controls 100 shares, the total amount paid for this trade was around $383,000.

Caesars Entertainment Corp.'s Caesars Palace in Las Vegas.
Sam Hodgson | Bloomberg | Getty Images
Caesars Entertainment Corp.'s Caesars Palace in Las Vegas.

The trade comes on the same day the Nevada Gaming Control Board reported that revenues on the Las Vegas Strip fell 4 percent in February compared to last year, which, in turn, saw a 20 percent drop from 2013.

"Given that a lot of gaming metrics remain weak like Strip revenues, my guess is that bullish speculation has to do with REIT conversions," said CNBC contributor Mike Khouw.

The company filed for bankruptcy in January and has been trying to cut $10 billion from its $23 billion of debt (which is just about equal to all of its assets). Caesars proposed splitting itself into a REIT and an operating company several months ago, but that was initially met by opposition from its creditors.

However, the recent rally may be part of the market's optimism about other casino stocks' looking to split into operating companies and REITs. Several casinos that have or are, or are said to be, considering splitting were up Tuesday, including names such as Penn National, Boyd Gaming and Pinnacle Entertainment.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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