Casino stocks are turning into a dumpster fire. One has even returned to last year’s pandemic lows. The fact that investors view the prospects of these companies as bad as it was when we were staring a potential planet-wide depression in the face is telling. So today, we’re digging into three casino stocks to sell.
When it comes to explaining the rapidly unwinding share prices, two narratives come to mind.
First, resurging novel coronavirus cases with the delta variant has led to less traffic and ultimately less revenue for casinos. Second, and more pressing, is the crackdown by Chinese regulators on gambling.
Fears of stricter industry regulations have soured sentiment, and understandably so. Just look at what increased government scrutiny has already done to Chinese tech, education, and gaming companies.
That said, here are three stocks on the ropes that are quality candidates for bear plays:
Let’s take a closer look at the damage and see what trade ideas make the most sense.
Casino Stocks to Sell: Wynn Resorts (WYNN)
The first two numbers to bring to your attention are -43% and -27%. The first is how much Wynn Resorts is down from this year’s peak. The second is how much it’s down so far for the year. Contrast these gross metrics with +18%, which is the S&P 500’s year-to-date gain. There’s a grand canyon of difference there, and it speaks to just how grim Wynn’s performance has been.
In fairness, WYNN stock formed a pretty compelling bottoming pattern last month, even breaking above the 50-day moving average. Unfortunately, the recent news from China completely upended the reversal. Distribution has been enormous as institutions have fled the premises.
The only silver lining I can drum up is the oversold conditions. A snapback here would not be surprising given how deep in the hole prices have fallen.
So if you want to wait on deploying the following trade until after a rebound, feel free.
The Trade: Buy the November $80/$70 put spread for around $3.30.
Las Vegas Sands (LVS)
Las Vegas Sands holds the unenviable position as the worst performer of today’s trio. This year’s relentless rollover has officially returned LVS stock to the depths of March 2020. Moreover, its price trend looks atrocious on every time frame, and there are overhead resistance levels galore.
As a result, all rallies should be viewed with skepticism and are likely selling opportunities for the time being.
Bulls will argue investors have priced all the bad news in, and the risk/reward favors longs versus shorts. They might be right, but it’s far too early to tell.
Besides, trends go on for far longer than most think they will. The easier path is to go with what’s working.
Because of the higher implied volatility, I like using spreads over long puts.
The Trade: Buy the November $36/$32 bear put spread for $1.35.
Like WYNN, you can wait for a rebound before pulling the trigger if the oversold conditions give you pause.
Casino Stocks to Sell: DraftKings (DKNG)
DraftKings is the final selection for our casino stocks to sell. Over the past three days, DKNG stock has gotten torpedoed. Yesterday’s downdraft saw trading volumes explode and made it one of the worst-performing stocks in the session.
Ever since the IPO, DKNG has been an extremely tricky stock to trade. It’s choppy, riddled with gaps and false starts, and hasn’t created that many compelling trade setups. For that reason alone, it’s a ticker I rarely play.
Regardless of whether you think the recent drama surrounding casinos applies to a sports entertainment and gambling company like DraftKings doesn’t matter nearly as much to the bearish message now being broadcast on its price chart.
If you think we see further downside in the wake of this week’s support break, then consider the following strategy.
The Trade: Buy the November $50/$45 bear put for $1.75.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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