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Credit Spread – Wynn Resorts (WYNN)

Lean against the crowd with this credit spread


Even the market has been acting rather bearish lately; there are still stocks that seem to defy the urge to move lower. Even if the stock does move lower, it seems like there is a good chance that it will find a way higher again. Here is a neutral to bullish trade idea on a company whose stock seems to be holding its own.

Wynn Resorts (WYNN): Put Credit Spread

The trade: Sell the September 125/130 Put Credit Spread (selling the September 130 put and buying the September 125 put) for 60 cents or better.

The strategy: The maximum potential profit for this trade is 60 cents if WYNN is trading above $130 at September expiration. The maximum loss is $4.40 ($5 – 60 cents) if WYNN is trading below $125 at September expiration. Breakeven is $129.40 at expiration based on a credit of 60 cents.

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The rationale:
Wynn Resorts reported earnings last month and the general consensus is that the results fell below estimates. One of the possible factors could have been Macau. The company has a huge stake in Macau and with China’s economy slowing, there may be some leaner times still ahead. But if you look at some recent reports, that thought may be an overreaction. A recent report on Macau said that gaming revenue increased by about 20% in July as compared to last year and it is expected to increase over 15% for the full year.

If you take a look at the chart of Wynn, you will notice that despite this recent downturn in the market, the stock has been basing at a $138 support area. In fact it has not closed below that area once it got above it. Maybe this resiliency won’t last forever but there are a couple of other areas of possible support worth noting too. There is a pivot level around $134 which is also where the daily 50-simple moving average currently resides as well. Plus there is also an upward sloping trendline that has formed for almost a year that the stock has barely closed below that is now residing at the $130 sold strike area. Possible multiple areas of support for Wynn stock is almost like buying insurance on a hand of blackjack.

No positions held at the time of this writing. If you are interested in a free trial of my LIVE options trading room visit:



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