On numerous occasions in 2014 we have taken some whacks at WYNN from the short side. The most recent trade from a couple of weeks ago looked to play for a consolidation between then and December expiration but own Jan at the money puts for what we felt would be disappointing Macau gaming data in early January (read here). While the thesis was bearish, the trade structure we chose was neutral for a bit, and has resulted in a loser, ugh. At the time the thought was that given WYNN’s reliance on Macau (about 70% of their sales) and the growing outperformance of the Shanghai Comp that we would expect WYNN to hang in there for the balance of the year. Well, the opposite has happened, WYNN shares have cratered 12% from their mid November highs, while the Shanghai comp has exploded to the upside, up 20% from the November lows:
At this point, with WYNN trading down about 35% from the all time high made in early March, now up only 1% from the 52 week lows, I think there is some potentially important stuff to extrapolate. First, the stock has been disconnected from the routine new highs in the S&P500 since March, suggesting that investors should place more relevance on their exposure to China than that of the U.S. which makes sense given their exposure to Macau. But what does the recent underperformance to the Shanghai, and the Hang Seng suggest? Is WYNN just an expensive stock that has seen growth expectations moderate. Or is WYNN a sort of Canary in the Coal Mine for a slower growth China?
I obviously have no idea what it means, but for a stock that was up 30% on the year at one point, defying logic, and now down 35% on the year I am hard pressed to think that there are not broader implications for other China related plays. The stock doesn’t trade with the S&P500, and doesn’t trade with Chinese equities, and I think it is too easy to just suggest that it is a stock specific story.
The stock is a very hard press on the short side as it is very oversold near term, and I would add that the stock has seen some unusual options activity, with total volume at 2x average daily volume with what looks like some call buying out in March. There has been a buyer of the match 185 and 184 calls, with about 1000 of each being bought to open.
Our WYNN calendar isn’t worth enough to sell at a loss here so we’ll try to wait to see if it sees an oversold bounce soon. But the story is an interesting one as WYNN is going one way while the Chinese markets go another.