Trade Wynn Resorts, Limited (WYNN) Stock With Confidence

Advertisement

It is often debated how close trading resembles gambling and vice versa. One thing that cannot be debated — and it true of both traders and gamblers — is that sometimes you are up on a trade, other times you are not.

Trade Wynn Resorts, Limited (WYNN) Stock With Confidence

A couple of weeks ago, I discussed how option traders can profit on a move no matter which way a stock goes. Let’s take a look at casino stock Wynn Resorts, Limited (NASDAQ:WYNN), which may be on a continued move higher or a reversal lower.

WYNN stock was given a price rating of $119 a shares by Morgan Stanley. On Thursday, the price surged through an area of resistance at around $105 and has continued to move higher over the past couple of sessions. Wynn Resort’s revenue is not solely comprised of revenue it receives from its holdings in Macau, but it is a noteworthy chunk.

Based on the latest Macau gambling revenue report in February, revenue grew for the seventh straight month and hit a two-year high. Where does WYNN go from here?

Taking a look at a two-year chart of WYNN just below, you can see that now the stock is trading over the $105 level, it does not have any potential resistance — at least until where it was trading almost two years ago, in the $136 range.


Click to Enlarge 
Just under two weeks ago, shares of Wynn Resorts were trading below $100, but have since moved up over $10 a share. Clearly, WYNN has a decent size range to move.

Giving shares about two months to make either new highs or test the $100 area again should be more than enough time.

WYNN Stock Options

The Rationale: Buying call and a put option at the same time with the same expiration gives the trade a chance to profit with a considerable move higher or lower. Two of the main enemies to this trade idea are time and complacency. Options are a decaying asset and lose value over time. This is a good thing for a seller of options and not such a good thing for a buyer of options, such as with this trade idea.

As mentioned above, WYNN stock has been very volatile recently and we need that volatility to continue in one main direction. If shares moves up and down and basically stay where it is, time decay will erode away the premium.

The Trade: Buy the May $115 call and the May $110 put for $10.10 or less.

The Strategy: A strangle is when a call and a put are bought generally one strike OTM with the same expiration. Strangles are volatility spreads. When a strangle is bought, it is done in the expectation of a big move either up or down. In effect, an option trader has an opinion about volatility, but not the price, as discussed above. The maximum profit on a strangle is theoretically unlimited because the stock can continue to rise forever and pretty much fall to zero.

Breakevens are at $99.90 and $125.10 at expiration based on a cost of $10.10. The maximum loss is $10.10, or whatever was paid for the strangle if WYNN stock finishes at or between $110 and $115 at May expiration. Both options would expire worthless.

Adding to the intrigue of this potential options trade is the implied volatility (IV). Keeping things simple, IV levels tell how options are currently priced. When IV is low, options are considered cheap; when IV is high, options are considered expensive. Since we are buying a call and a put option, we prefer IV levels to be low. Currently the 30-day IV level for WYNN is at a 52-week low. Good luck!

John Kmiecik is the head options instructor for Market Taker Mentoring, and co-author of the eBook 3 Secrets to Making Money in Any Market. Get your complimentary copy of his option trading eBook here. He can be reached at john@markettaker.com.  At the time of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/trade-wynn-stock-with-confidence/.

©2024 InvestorPlace Media, LLC