Time To Roll The Dice On This Casino Stock

WYNN options are cheap as the stock tests a historically bullish trendline

Managing Editor
Jul 10, 2018 at 3:04 PM
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Shares of Wynn Resorts, Limited (NASDAQ:WYNN are climbing today, up 3.1% to trade at $165.06. The recent bounce comes after the gaming stock had pulled back to a trendline with bullish implications. With this in mind, it may be time to bet on a sustainable WYNN recovery.

Last week, a second straight monthly revenue miss at Macau caused Wynn stock to pull back to within one standard deviation of its 320-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been three other times over the last three years where WYNN has pulled back to this trendline after trading above it for a significant length of time. Following those three prior signals, the stock went on to average a one-month gain of 10.66%, with all of the returns positive.

WYNN Stock Chart

Another move of this magnitude would put the equity around $182 one month from now -- effectively filling its early June bear gap. The casino stock earlier today received an upgrade to "buy" from "hold" at Stifel, with the analyst in coverage citing a possible increase in free cash flow in 2019 as a reason to own the stock in the long-term. Despite the burst today, though, WYNN stock is still trading a few points below its year-to-date breakeven point. 

Options traders have shown an appetite for calls lately. WYNN's 10-day call/put volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 2.17. Not only does this show call buying has more than doubled put buying, but that reading ranks in the high 90th annual percentile, showing such a preference for calls over puts is highly unusual.

The good news for options traders is that it's an attractive time to buy premium. The security's Schaeffer's Volatility Index (SVI) of 29% ranks in the 24th annual percentile, meaning short-term options are pricing in relatively low volatility expectations at the moment.

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