Many people have compared trading to gambling. Truth be told, there are quite a few similarities. Both traders and gamblers are trying to put the odds on their sides. Here is a trade idea in a casino stock where the risk is greater than the reward, but the odds seem to be in the trader’s favor.
Wynn Resorts Ltd. (NASDAQ:WYNN): Call Credit Spread
The trade: Sell the April 130/135 Call Credit Spread (selling the April 130 call and buying the April 135 call) for 55 cents or better.
The strategy: The maximum potential profit for this trade is 55 cents if WYNN is trading below $130 at April expiration. Both call options would expire worthless. The maximum loss is $4.45 ($5 – 55 cents ) if WYNN is trading above $135 at April expiration. Breakeven is $130.55 at expiration.
Click to Enlarge The rationale: If you have ever been to Las Vegas, Wynn Resorts is one of the big names among other casino operators like Las Vegas Sands (NYSE:LVS) and MGM Resorts (NYSE:MGM). Wynn Resorts develops, owns and operates casino resorts throughout the world. The company has posted negative earnings in three of the last four quarters and is scheduled to announce their next earnings in early May. What will those earnings reveal? There is no way to tell but if you are going on the last four earnings, the odds are leaning towards being in the red.
Taking a look at WYNN’s chart, there haven’t been any investors or traders thinking about negative earnings if you look at the last five trading sessions. The stock has moved from below $115 to where it is currently trading and where it is currently trading is what this trade idea is all about. On Thursday the stock formed a topping tail (hammer candle) right at a resistance area (previous pivot highs) right around $127. This is a potential reversal sign particularly if the stock trades below Thursday’s low which was $128.27. With just over a week to go for this credit spread and the potential of the market pulling in after this amazing run higher, WYNN looks like a real Vegas winner!
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No positions held at the time of publication.