What's the idea?
Tourist traffic to Macau continues to grow, with 57% more passengers traveling on the Hong Kong-Zhuhai-Macau route in the first five months of 2024 compared to the same period last year. On 30 June 2024, the Chinese authorities opened a bridge between Shenzhen and Zhongshan in Guangdong Province, improving accessibility to Macau from mainland China and boosting the economic prospects of the Greater Bay Area.
Las Vegas Sands exceeded its Q1 2024 guidance on key financial metrics. Given the positive passenger traffic dynamics in Macau, this scenario is likely to be repeated in Q2, which could lead to a positive revaluation of the company's shares. We recommend buying CALL options on LVS stock with a strike price of $45 and an expiration date of 20/09/2024. The option will cost around $2.70, while one contract will cost around $270 as options are traded for 100 shares.
Clients who are more pessimistic about the possible LVS stock performance and would like to take a bearish position can buy PUT options with a strike price of $44 and expiration date of 20/09/2024. The option will cost around $2.30, while one contract will cost $230.
About Company
Las Vegas Sands (LVS) operates several casinos and related hospitality and entertainment infrastructure in the Macau Special Administrative Region (Macau, China) and a casino complex in Singapore. The company was founded in 1988 and is headquartered in Nevada, USA.
Why do we like CALL OPTION LVS.US @45?
As the coronavirus restrictions in China were lifted later than in the rest of the world, tourism to Macau is still recovering. As a result, Las Vegas Sands is likely to report strong growth in financial performance in Q2 2024.
First, passenger traffic across the Hong Kong-Zhuhai-Macau bridge increased significantly from January to May 2024. Compared with the same period last year, the number of travelers on this route increased by 57% to 11.65 million. About 60% of passengers used this route to travel from Hong Kong to Macau and back.
The Hong Kong-Zhuhai-Macau bridge is one of the main routes used by tourists traveling to the Las Vegas Sands gambling complex in Macau. Foreigners and Chinese residents use either the Macau International Airport or the neighboring Hong Kong, Zhuhai, Shenzhen and Guangzhou hubs. The increase in passenger traffic across the Hong Kong-Zhuhai-Macau Bridge indicates that the influx of customers to Macau's casinos continues to grow and may soon return to pre-pandemic level: in Q1 2019, the number of tourists visiting Macau reached 10.4 million, compared to 8.9 million in Q1 2024.
The Hong Kong-Zhuhai-Macau bridge
Second, a new bridge between the major cities of Shenzhen and Zhongshan in the Greater Bay Area region of southern China was opened to traffic on 30 June 2024. The additional artery made it easier to travel from Shenzhen to Macau, which is important as the Hong Kong-Zhuhai-Macau bridge is experiencing record passenger traffic and congestion.
Bridge connecting Shenzhen and Zhongshan
The Chinese authorities have commissioned the new bridge as part of a strategy to develop the Greater Bay Area, which includes Macau, Hong Kong, Shenzhen, Zhuhai and several other major cities along the bay. This area, home to around 6% of China's population, contributed 11% of the country's GDP in 2023. We believe that this and other projects aimed at developing the Greater Bay Area will increase the region's tourism appeal and economic potential, which will have a positive impact on Las Vegas Sands' business in the near term.
It is also worth noting that, according to the company's Q1 2024 results, it has managed to translate the recovery in tourism into improved financial results. Thus, Las Vegas Sands' net revenue from Macau casinos increased by 41.59% YoY, adjusted property EBITDA was up 53.27% and the adjusted property EBITDA margin reached 33.7%, up from 31.1% a year earlier.
Dynamics of the company's financial results
Despite improvements in Las Vegas Sands' business and a positive trend in tourist traffic to Macau, investors are still skeptical about the stock of the largest casino operator in the region.
Dynamics of the company's stock price
We believe investors are underestimating the potential of the 2024 tourist season and Las Vegas Sands' ability to deliver strong results again next quarter. We expect the company's likely further improvement in financial performance in the coming reporting season could lead to a positive revaluation of its stock price.
How to use the idea
We recommend buying CALL options on LVS stock with a strike price of $45 and an expiration date of 20/09/2024. The option will cost about $2.70, while one contract will cost around $270, as options are traded for 100 shares.
The investor will profit if the underlying asset’s price is above the breakeven point* of $47.7 on the expiration date. The higher the LVS stock price rises above this point, the greater the profit will be. We recommend closing the position when the option price reaches $5.0. In this case, the profit will be 85%.
If the underlying asset’s price is above $45 but below $47.7 on the expiration date, the investor will incur a loss, which will be limited. If the underlying asset’s price is below $45, the investor will incur a maximum loss of $270.
The chart below shows the distribution of profits and losses from the option position depending on the LVS stock price on the expiration date.
Bearish view on the stock and PUT options
It cannot be ruled out that some negative corporate news could lead to a decline in the LVS stock price. If you have a bearish view on the company, you can buy PUT options on the stock with a strike price of $44 and an expiration date of 20/09/2024. The option will cost around $2.30,, while one contract will cost about $230.
If the underlying asset’s price is below the breakeven point* of $44 on the expiration date, the potential profit could reach $4 170.
If the underlying asset’s price is below $44 but above $41,7 on the expiration date, the investor will incur a loss, which will be limited. If the underlying asset’s price is above $44, the investor will incur a maximum loss of $230.
Important note
Options must be purchased with a limit order. Buying an option contract with a market order can result in extremely unfavorable prices.
This is a speculative investment idea which carries increased risks. Investing in options can provide a 50%, 100%, 200%, and in some cases even higher returns, but also can lead to a complete loss of the amount invested! In cases where volatility is low, profit or loss can vary between 20% and 30%.
A prudent approach to implementing option ideas is to invest a small portion of the portfolio in many such cases. In this way, losses from unsuccessful ideas will be compensated by high returns on successful investments.
Key risks
There is a possibility that some negative corporate news could lead to a decline in the LVS stock price. In this case, the CALL options would lose value, while the PUT options would increase.
Excessively low volatility in LVS stock may result in the options becoming devalued by the expiration date.