Betting on red has been a big win for bears in WYNN Resorts, Limited (WYNN). But a recent wager by the house, a chart pattern known for putting chips in bulls’ wallets and confirmation of better-than-feared earnings results mean it’s time to play for some green in WYNN stock.
Prior to reporting a better-than-feared profit report, it hadn’t been a good year for WYNN stock.
Shares of WYNN stock had been down an above-market 26% out-the-gate in 2016 through Thursday’s close.
What’s more, the early outsized decline in 2016 followed 2015’s drop of nearly 55% in WYNN and loss of 76% since March 2014’s all-time-highs near $250 in WYNN stock!
Behind the pressure — or more aptly, the royal flush — of WYNN stock over the past year is investor concern regarding the legendary Vegas Strip casino operator’s operations in Macau, China.
A marginalized Chinese consumer and increased currency and real-estate risks, as well as a crackdown on gaming corruption by Beijing officials, have conspired to invoke the fear of god into investors and pressure WYNN stock in the process.
And with Wynn’s overseas interest in two resorts in Macau responsible for revenues in excess of 65% of Wynn’s total sales, the concern in WYNN stock certainly isn’t entirely misdirected.
Still, it appears those fears may have been overdone based on Wynn’s earnings win! The WYNN stock price exploded higher by more than 13% Friday as the market tanked yet again by 2.15%.
Another item of potential support is recent and significant insider buying of WYNN stock.
Steve Wynn, founder and CEO of Wynn Resorts isn’t all-in, but a 1 million-plus share increase to his existing WYNN stock holdings early last month puts Steve Wynn’s direct and indirect interest at more than 11 million shares. That’s huge!
The cost of the purchase was roughly $63.5 million and represents a sizable bet in WYNN stock — or for that matter, any publicly traded company by an individual investor.
And unlike selling shares, which can be for any number of reasons, a massive open-market purchase like this has but one purpose … to win by betting on green for WYNN stock.
WYNN Stock Monthly Chart
On the technical side of WYNN stock, a double bottom reversal pattern (best viewed on the daily price chart) has emerged.
I’ve included the monthly chart of WYNN stock so readers might gain some perspective on the size of the post-earnings reaction in relation to the last couple years. While obviously modest, the technical reversal pattern increases the likelihood WYNN stock could turn the tables on the bears’ stranglehold.
Further, if we can consider the house most often wins its bets, Steve Wynn’s average purchase price of about $63.50 means investors are getting a sizable discount of roughly 10% to play WYNN stock and a confirmed bottom right now.
Having said all this, technically I wouldn’t want to join Steve with long-term ownership of WYNN stock if the double bottom fails to hold.
As the chart also depicts, the current test of the October low was the result of a symmetrical triangle. Symmetrical triangles like the one in WYNN stock hold the slight advantage as a continuation pattern. That’s bearish.
Further, the triangle formed around the 78% retracement level — a break below this week’s lows could find the WYNN stock price, despite the significant insider buying, reeling back to the 2009 bottom.
WYNN Stock Bull Call Spread Strategy
Reviewing the WYNN stock options board, the March $55/$65 bull call spread for up to $4.50 is attractive. If WYNN stock pulls in a buck or two on modest profit-taking, the trader may be able to initiate for around $4 per spread.
Based on a debit paid of $4.50, the 10-point-wide spread allows for a max profit of $5.50, or return of 122%, above $65 in WYNN stock.
An expiration breakeven of $59.50 in WYNN stock is less than 2% from Friday’s close of $58.37 and compares favorably to Steve Wynn’s large wager near $63.50.
Given we want the double bottom to hold and aren’t looking to accumulate WYNN stock if it goes lower, the trader could look to exit prior to expiration for a smaller loss than the maximum.
Likewise, I would look to take some chips off the table should WYNN stock trade higher by 10%. This type of money management enables a more secure win versus the just breaking even game of “hold ‘em” being played by the other Wynn.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
