OptionMonster co-founder Pete Najarian provides options picks Monday, Wednesday and Friday in TheStreet.com's Deep in the Money Calls newsletter.

Mike Yamamoto, managing editor of OptionMonster.

Melco Crown Entertainment ( MPEL) is drawing some bullish long-term options activity today after brokerage firm Sterne Agee initiated coverage of the Macau casino operator with a "buy" rating.

Traders were focused on the October 7.50 strike, where 3,000 calls changed hands early in the session at more than 1.5 times open interest. Average call volume at that strike is just 8 contracts, according to OptionMonster's tracking systems.

The calls changed hands in a strong buying pattern for 20 cents and 25 cents in what appears to be three trades at 1,000 contracts each. Melco shares are trading under $5, so the shares would need to rise by more than 50% for the October 7.50 calls to be profitable by the time they expire in three months.

Melco, which is up 2.5% to $4.97 in midday trading, has closed over $5 only once in the last month. The last time the stock traded over $7.50 was August 2008, and even then only for a few days.

The Hong Kong-based company has not yet scheduled its second-quarter earnings report. Macau casinos have suffered during the recession along with the rest of the gaming industry, but Melco opened its much-anticipated City of Dreams on June first and says it attracted more than 1 million visitors in its first month of operation.

Today's call buying constituted 94% of all Melco options traded in the session so far, and only 213 puts changed hands at all strikes. Total calls outnumbered puts by more than 15 to 1.

If you liked this article you might like

UBS Bullish on Macau, Rates Wynn, MGM and Melco as 'Buys'

Strong March Macau Numbers Send Casino Stocks Rising

Las Vegas Sands Is a Good Bet in Macau

Macau January Revenue Up but Falls Below Expectations

Despite Road Bumps, Chinese Casinos Will Still Rebound