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Casino concern Wynn Resorts, Limited (NASDAQ:WYNN - 124.30) has added more than 6.3% in March, ushered higher atop its 10-day moving average. Nevertheless, option traders are scooping up puts at a rapid-fire pace, either to gamble on a short-term retreat, or to "insure" a long stock position.
On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 1.41, indicating that traders have purchased more puts than calls during the past two weeks. Even more telling, this ratio sits just 6 percentage points from a 52-week peak, implying that option buyers are placing bearish bets at a near annual-high rate.
Echoing that, Wynn Resorts saw around 7,000 puts change hands on Wednesday, more than doubling the norm. Most popular was the out-of-the-money April 115 put, which saw nearly 4,250 contracts cross the tape. A healthy portion of the volume traded at the ask price of $0.64, and open interest surged by more than 3,600 contracts overnight, hinting at buy-to-open activity.
By purchasing the puts to open, the buyers have one of two motives: to profit from a breach of the $114.36 level (strike price minus premium paid), or to lock in gains on a winning stock position. In the case of the latter, the protective puts simply guarantee an acceptable price at which to unload WYNN shares ($115), should the equity take a turn for the worse before options expiration on Friday, April 19. In either case, the most the buyers can lose is the initial premium paid for the puts.
Whatever the motive, now is an opportune time to scoop up Wynn Resorts, Limited's front-month options. The stock's Schaeffer's Volatility Index (SVI) has fallen to 22% -- above just 1% of all other readings of the past year. Or, in simpler terms, the equity's April-dated options are relatively inexpensive at the moment.
At last check, the shares of WYNN have erased early losses, up 0.1%. The company said COO Marc Schorr will retire effective June 1.