Don't Bet Against Toys

06/24/2010 1:37 pm EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Elizabeth Harrow of Schaeffer’s Investment Research says pessimism on Hasbro and Wynn Resorts could bite the bears.

Late Wednesday, The Wall Street Journal reported that Hasbro (NYSE: HAS) is in preliminary talks with private-equity firm Providence Equity Partners regarding a potential leveraged buyout of the toy maker. The newspaper's sources state that the discussions are still in the early stages, and a deal might not pan out; the two parties are progressing slowly due to the increased volatility in world markets.

"There are always rumors and speculation about public companies and we just don't comment on that," said Hasbro spokesman Wayne Charness when pressed for comment by the Journal. However, analysts at Wedbush Morgan think the report is credible, with the brokerage firm hiking its price target on HAS from $46 to $52 ahead of the open.

HAS [was] up nearly 10% in pre-market trading, with the stock extending its impressive year-to-date gain of 28.3%. The shares are perched comfortably above double-barreled support from their ten-week and 20-week moving averages, which have propelled HAS higher since July 2009.

Plenty of skepticism surrounds HAS, which leaves the stock well-positioned to capitalize on a reversal of bearish sentiment. The equity's Schaeffer's put/call open interest ratio (SOIR) currently stands at 1.57, in the 73rd annual percentile, suggesting that short-term options traders have been more pessimistically aligned only 27% of the time during the past year.

Wynn Resorts (Nasdaq: WYNN) scored a bullish brokerage note this morning, as Sterne Agee raised its opinion of the equity from "neutral" to "buy." It's a relatively rare optimistic note for WYNN, which has earned just five "strong buys," compared to ten "holds" and two "sells." Sterne Agee also raised its price target on WYNN from $85 to $115, implying expected upside of more than 34% to the stock's closing price on Wednesday.

WYNN tacked on 0.7% in pre-market action, with the shares extending their 2010 gain of 47.3%. The stock recently pulled back to support at its ten-day moving average, which could serve as a springboard to launch WYNN on its next leg higher.

In light of today's upgrade, the stock stands to benefit from an unwinding of bearish bets. During the past ten days, traders on the International Securities Exchange (ISE) have bought to open 2.65 puts for every call on WYNN. This ratio ranks in the 97th annual percentile, marking a near-peak of pessimistically skewed speculation.

Subscribe to the Option Advisor here…

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS

Keyword Image
Mastercard: Ready to Charge?
12/07/2018 5:00 am EST

Mastercard (MA) reported third quarter revenues rose 15% to $3.9 billion with net income charging 33...