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Wynn Resorts Traders Place Short-Term Bets on Additional Upside

Short-term speculators hone in on WYNN's weekly 120- and 125-strike calls

by 10/25/2012 2:33 PM
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Option activity is heavy on Wynn Resorts, Limited (NASDAQ:WYNN - 119.24) today, after the casino concern unveiled its third-quarter earnings report last night. Calls and puts are each trading at roughly three times their respective intraday volumes. By the numbers, approximately 19,000 calls have crossed the tape, compared to around 14,000 puts.

Last-minute speculators are rolling the dice on the weekly 120- and 125-strike calls. The majority of contracts at each strike has crossed at the ask price, and volume is outstripping open interest, pointing to buy-to-open activity. By initiating the near-the-money 120-strike call, traders will profit with each step north of $120.92 (the strike plus the volume-weighted average price [VWAP] of $0.92) WYNN takes through Friday's close, when these options expire. Meanwhile, the purchasers of the out-of-the money 125-strike call expect WYNN to sail through the $125.05 mark (the strike plus the VWAP of $0.05) by the sound of tomorrow's closing bell. These breakeven levels represent a respective 1.4% and 4.9% premium to WYNN's current perch.

Today's preference for puts runs counter to the withstanding trend in the options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.99 ranks higher than 76% of other such readings taken in the last year. In other words, puts have been bought to open over calls at an accelerated clip in recent weeks.

Additionally, WYNN's Schaeffer's put/call open interest ratio (SOIR) is currently docked at 1.43. This ratio ranks in the 98th percentile of its annual range, indicating short-term speculators have been more put-heavy just 2% of the time within the past year.

For a stock that was sporting a 12.3% year-over-year deficit heading into today's session, the pessimism among option players is understandable. However, the equity has popped 6% today, after the company reported its third-quarter profit beat expectations. Plus, WYNN announced it is doubling its quarterly dividend to $1, and issuing shareholders a special one-time $8 dividend payment. This post-earnings pop has WYNN taking a solid bounce off its 200-day moving average, suggesting this psychologically significant trendline could serve as support going forward.

Coupling today's technical triumphs with a healthy short interest-to-float ratio of 6.8%, the volume surrounding WYNN's weekly call options may simply represent short sellers picking up hedges against their pessimistic positions. In fact, with implied volatility sinking more than 32 percentage points at each strike on the heels of last night's earnings announcement, shorts are able to pick up the near-term options insurance at a bargain.

At last check, WYNN has tacked on 6.1% to hover near $119.18.


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