How one trader is trying to hit the jackpot in a casino stock

It's been a great year for shares of MGM Resorts, which have soared 29 percent in 2016. But one trader thinks the casino stock is set to rise even higher in the months ahead.

Andrew Keene, CEO of AlphaShark.com, says MGM is in the midst of a "bull channel" that began in late July, and has taken the stock from $21 to $30. At this point, he says $30 is serving as a level of resistance, but he sees it breaking through soon.


"I think that is going to become new support for MGM," Keene said Thursday on CNBC's "Trading Nation." "I think MGM takes out $30 and moves up to $35 by next June."

Giving Keene more reason for his bullish outlook is an institutional buyer he saw come into the options market recently, purchasing more than 5,000 June 30-strike calls on the stock.

In order to play for a move up to $35, Keene turns to the options market. Specifically, he purchases the June 30-strike calls and sells the June 35-strike calls for a total of $1.50 per share, or $150 per options spread. In order for Keene to make money on his trade, MGM would have to close above the break-even level of $31.50 by June expiration. If MGM does indeed close at or above $35 on June 16, he could more than triple his money on the trade.

In order to play for a move up to $35, Keene purchases the June 30-strike calls and sells the June 35-strike calls for a total of $1.50 per share, or $150 per options spread. For Keene to make money on his trade, MGM would have to close above the break-even level of $31.50 by June expiration. If MGM does indeed close at or above $35 on June 16, he could more than triple his money on the trade.

Since he's risking much less than he could potentially make, Keene calls the trade "a great reward-to-risk setup."

Trader takeaway: Keene is bullish on MGM Resorts, and is buying the MGM June 30/35-strike call spread for $1.50 per share.


Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect