There seems to be no good news in site for the casino stocks. On October 23, I had mentioned that the sector has been battered and bruised and it’s unbelievable how low some of these stocks have gotten. We used the weakness to play a two-week rally and made some tremendous profits along the way.

Before the opening bell this past Monday, I had said to place stops on all of the casino plays as they had enjoyed a nice rally. Here is what I said before the opening bell: “If you are in any of these positions, scale back on the November calls by closing 50%-75% of your contracts and at least half of your January positions. The ride has been fun but you have to protect your profits and start preparing for the next trades.”

We used the current November call options and some January 2010 call options to play the rebound. The November calls are no good to us anymore because they expire in a couple of weeks.

The previous January 2010 call options I had mentioned are looking attractive again but we are going to have to be selective with a few of them.

Las Vegas Sands (LVS, $7.03, down $0.82) rallied from $8.57 on 10/23 to a high of $16.81 this past Monday. The November 10 calls (LJJKB, $1.00, down $0.40) went from 50 cents to $5 over the same time period and now look at them. The January 2010 10 calls (LNUAB, $3.50, down $0.50) were going for $2.20 and hit a high of $8.50 before falling back down with the stock. If you’ll notice, the 2010 calls are still higher than where they were originally profiled and that is due to the jacked-up volatility in the stock.

I had mentioned the huge short position in the stock and although there was a “short-squeeze” it looks as though the bears are targeting the stock once again. On Friday, the company said is seeking funding to help with some of its loans and that it has “substantial doubt” about its ability to survive. That smells like bankruptcy but doesn’t necessarily mean bankruptcy although those words in quotations would scare even the bravest souls.

Las Vegas Sands has some sweet properties (The Venetian, The Palazzo, The Sands Macao and The Venetian Macao in China) and it’s possible that their lenders will work with them. However, the near-term outlook is bleak for the company. The stock had been rebounding lately on hopes that a recovery was in the works, especially after the company’s CEO invested nearly $500 million of his own money.

Because of the near-term outlook, we may have to wait on the sidelines to see how this one plays out. However, one little nugget that I found that was interesting was the fact that the company still plans to move forward with the Singapore Marina Bay project. That statement leads me to believe that the company has an Ace up its sleeve.

If Las Vegas Sands can make it through this quarter, then we will see. I have a good feeling that someway, somehow LVS will come up with the cash it needs to continue its operations. The stock had a 52-week high of $123 and was above $150 before that and a low of $4.32. These are the risks and there was heavy buying in the near-term put options for Las Vegas Sands. The November 5 puts (LJJWA, $1.15, up $0.25) traded over 8,000 contracts on Friday. There may be an opportunity to make some money on the downside with LVS, but again, let’s see how this one shakes out. I’d rather go long when things improve instead of getting hit by a short-squeeze in case the company comes out an announces a new financing package. Keep the January 2010 calls on your Watch List.

As you can imagine, other casino stocks fell in sympathy with LVS. MGM Mirage (MGM, $12.32, down $0.99) hit a high of $17.28 on November 3 and held above $15 before tumbling by the end of the week. However, MGM has gone “all-in” as it has agreed to provide up to $1.5 billion to complete its joint venture CityCenter project if outside financing cannot be secured. The company priced $750 million of senior secured notes, which will help reduce liquidity worries but they are taking a huge gamble. I like them more than LVS. The November 10 calls (MGMKB, $2.75, down $1.05) went from $2 to nearly $7 and now they are back at $2. Forget about them now. The January 2010 10 calls (YDMAX, $5.75, down $2.25) soared from $4 to $10 and are back under $6. Let’s see if this one can come back to us and we will set “alerts” at $4.50. If the calls can get back down to this level we can keep lowering our entry price in hopes of finding a bottom.

Wynn Resorts (WYNN, $46.04, up $0.34) may be the “best-of-breed” out of all of the casino stocks and perhaps the most volatile. The stock went from $28 on October 28 and hit a high of $63 three days later. The November 40 calls (UWYKH, $7.30, down $0.60) were trading for $2.35 and hit a high of $19! The January 2010 40 calls (YPWAH, $15.70, down $0.10) could have been purchased for $10.20 and hit $23. Let’s target $10 again as an attractive entry point or we may go further out.

The rest of the group are also in survival mode but they don’t look as enticing as MGM and Wynn. Boyd Gaming (BYD, $5.21, down $0.15), Pinnacle Entertainment (PNK, $6.25, up $0.47) and Trump Entertainment (TRMP, $0.58, down $0.05) may have some value in them if they can survive and out of this group, I like Pinnancle the best. The company owns the high-end Lumiere in downtown St. Louis, Mizzo which should see a pick-up in traffic after voters repealed a loss limit law that prevented gamblers from losing no more than $500 in two hours.

We banked tremendous gains on some of these stocks and now that they are falling out-of-flavor with Wall Street again there is a chance they might test their 52-week lows. More bad news could be on the way Monday as well. October’s casino revenue numbers for Atlantic City come out and they are expected to be pretty nasty. September revenues were down 15%, the greatest monthly decline in the 30-year history of legalized gambling. A smoking ban hasn’t helped matters either but that could expire in a week or so.

As you can see, there are some land-mines planted in our field of dreams but the sector won’t stay down forever. Gambling is not going to go away and the stronger casinos will survive and thrive if they manage the current slump correctly. Keep an eye on the aforementioned January 2010 calls I have listed and the new target prices.

Rick Rouse