A few weeks ago we went back to the well in WYNN looking to play for a breakdown below $200 in the stock. Into its recent earnings report the stock bounced from our entry and once again tried to get above its recent range of 200-220 but once again failed at that $220 level. The stock is now back towards the lower end of that range and our position is back in play. To recap, here was the original structure:
Trade: WYNN ($201.50) Bought July 25th (weekly) 195 / Aug 16th 200 Put Diagonal for $5.50
-Sell to open 1 July 25th 195 put at .75
-Buy to open 1 Aug 16th 200 put for 6.25
The July 25th puts expired worthless which now leaves the Aug 200 puts with a net cost of $5.50. With the stock at $203 those puts are worth about $3.50. So a mark to market loss of about $2. That could change quickly depending on what’s next in the stock. Expiration is just over a week away and any break below 200 this week means the trade could turn into a winner. Any hold of this area and a move higher would risk the trade being a complete loser.
We think it’s only a matter of time before one of these tests of $200 fails and that could mean a quick move to $190 or even lower. That almost happened today as the stock opened below its 200 day moving average and bounced off $200. You can see how significant this level is o the 6 month chart:
Looking at WYNN’s peer LVS, it may have already started to breakdown from similar levels:
Because we continue to believe a breakdown is inevitable we want to be very careful about the time remaining in a trade like out current one. If that breakdown doesn’t happen soon we’ll have no choice but to roll the position out at least a month. Currently those puts have a 40 delta, but any bounce here and those deltas quickly approach 0 as we get closer to next Friday. The breakeven of the trade on the downside also get’s farther away as the days tick because right now the puts have $3.50 of premium (intrinsically they are worthless above 200). That means the longer we wait until next Friday the more we need that break below $200 to be significant as the breakeven on the trade goes from a couple of dollars to more like 8-9 from here as the days advance.
So look for us to give it a shot here and if it doesn’t look like it’s happening in the next few days we’ll look to roll the position out and give ourselves more time.