I am taking this one off at 1.05 for a very small gain, and frankly only break-even after commission. Here is the deal, I played for a big move lower on earnings, and while the stock acts horrible since its gap opening yesterday, I am still going to cut and run. I played for the event, didn’t get the move and now going to move on. In a name like this I consider this a small victory.
At this point, barring some big move lower in the market, I expect this stock to consolidate a bit in this flag that it has been in for the last couple weeks btwn 154 and 162. As we get closer to Aug expiration the 150 Put that I own will start to decay more rapidly. Also in multi-leg trades be sure to use limits. for instance this fly is 1.01 at 1.19, I put an order in to sell half at 1.06 and got filled….do not use market orders in multi-leg trades.
Good example of getting sentiment right and being very tough to make money. I really liked this trade as the risk reward seemed very reasonable and the fact that I can now get out unchanged I feel at the very least I accomplished a little of what I set out to do.
WYNN ($164.70) reports Q2 results tonight after the close.
-the options market is currently implying about a 5.5% move following earnings vs the 8 qtr average move of 5.75%
-analyst community is fairly mixed on the name with 9 Buys, 18 Holds and 1 Sell and an average 12 month price target of about $150.
-the stock has had a massive ~25% run in the last month, vastly outpacing the SPX‘s 5% rally in the same time period.
-As expected with the strength, short interest has picked up of late to a about 3.5% of the float as of the end of Q2, I would imagine it is higher now with the stock making new 52 week highs everyday.
-Technically this is a tough call….1 yr chart below shows the consolidation and then massive breakout which it has done 4 x in the last 12 months…..[caption id="attachment_3310" align="aligncenter" width="300" caption="1 YR WYNN chart provided by Bloomberg Lp"][/caption]
MY VIEW: Of course I want to be short this stock….2/3 of the revenues come from Macau and at this point if you are long the stock at these levels you are making a macro bet that China will be able to orchestrate a soft landing on their overheating economy. Trends in Las Vegas have been ok, but any hiccups in Asia and this thing is toast.
The stock is clearly reflecting good news and would take some material upside to get this thing going higher…..that said with short interest where it is I want to make a low premium bet that the stock retraces a portion of this move following results.
TRADE: WYNN (164.70) BUY AUG 150 / 140 /130 Put fly For 1.00
-Buy 1 Aug 150 Put for 3.30
-Sell 2 Aug 140 Puts for a total of 3.00 (1.50 each)
-Buy 1 Aug 130 Put for .70
Break-Even on Aug Expiration:
Worst case: stock btwn 150 and 149 lose up to 1.00, stock above 150 lose all 1.00
Best Case: stock btwn 149 and 140 make up to 9.00, stock at 140 make full 9.00
Btwn 140 and 130 payout trails off and 130 or below lose 1.00 premium.
TRADE RATIONALE: Puts are expensive and to buy outright you need to be really right on direction to just breakven…this trade structure lets you commit a small amount of premium while playing for a big move/big pay-out……risk what you are willing to lose if you believe this stock is ahead of the fundamentals. I like the 10 to 1 payout and a re-tracement to the $140 support level could be in the “cards” if earnings or guidance miss what have to be high expectations.