I trade in stocks, not puns, so… sorry for the title line.
I don’t know if anyone missed the astonishing performance of Sands China Ltd. recently, but it has had an amazing run from HK$15, right into… HK$ 25. Yay, almost 70 % return! (Which given its lower volatility is beating everything else in the Macau market.) Now what?
There are a heavy reasons for either side to pounce on here, so let me pick my favorites.
- That performance speaks for itself…
- But what really powered it was the strong upgrades and positive assessments from banks in terms of target price and earnings forecasts. This is mostly dependent on the property profile (Venetian!) and its great performance after adjusting for the Galaxy Macau opening.
- The lower volatility from the mass-market gambling segment vs the High Rollers, and Sands’ relatively larger portfolio of other revenue streams makes it a considerably less risky bet going forwards in these rather risky times, which should command a volatility-adjusted premium.
- Look at the way it trades at 25! 3x top at 25 in 5 weeks starting August 1st, then double top now, giving 12 large-wicked candlesticks at 24.5 or above where the close is below 50% of the candle height! Resistance if I ever saw it…
- Macro view. Duh… (This is sentiment, as I wrote about before, I expect any macro-slowdown because of European/American woes to be countered by China’s politicians in the long run, and benefit Macau greatly. That said, it doesn’t mean that stocks won’t go down tomorrow if Italy fiddles while Rome burns.)
No matter what your view, there are plays to be taken at these levels and 25 is the line in the sand to be broken. (Sorry…)
However, what is the most interesting approach at the moment?
Options! That 25 level significantly restricts implied volatility! Imagine a clean break (1 candle above and not touching 25.15) and where that will send options contracts! Cuts both ways, but if you are restricted to warrants, this could be the play of the day for bulls. If you can straddle, I guess now would not be a bad time to put one on!