Many people have compared trading to gambling. Truth be told, there are a lot of similarities between the two. In both cases, traders and gamblers are trying to put the odds on their side to be profitable. Here is a trade idea on a Las Vegas company where the odds should be on the trader’s side.
Wynn Resorts Ltd. (NASDAQ:WYNN): Put Credit Spread
The trade: Sell the March 105/110 Put Credit Spread (selling the March 110 put and buying the March 105 put) for 60 cents or better.
The strategy: The maximum potential profit for this trade is 60 cents if WYNN is trading above $110 at March expiration. The maximum loss is $4.40 ($5 – 60 cents) if WYNN is trading below $105 at March expiration. Breakeven is $109.40 at expiration based on a 60-cent credit.
The rationale: Shares of WYNN have fallen considerably in the last several days. The company has had a difficult time removing one of its shareholders over the past year but on Thursday it was announced that he has resigned. The company announced a year ago it was redeeming Kazuo Okada’s 24 million share stake in the company due to improper actions with Philippine officials. Will his resignation pump some new life back into the stock again?
The stock has fallen off a perch in the $122 area and has dropped to an area of support just below $116 (previous pivot highs). The stock has also formed a bottoming tail (hammer candle) in that same area. A bullish sign for the stock would it Thursday’s high ($116.32) is surpassed in the next couple of trading sessions. If the stock does drop lower, there is a horizontal 200 simple moving average that can act as another area of support right around $100 where we need to have the stock stay above for the put spread to expire worthless. In essence, the stock can trade higher, move sideways or fall about $5 until expiration and this trade still profits. Do you like the odds now?
No positions held. To hear more of my trade ideas please visit http://markettaker.com/mtm_group_coaching/