Gambling Gains with Wynn

05/29/2014 8:00 am EST


Andrea Kramer

Associate Editor, Schaeffer's Investment Research, Inc.

Now may be an opportune time to gamble on this featured stock, which is seeing its fundamental, technical, and sentiment stars aligning, suggests Andrea Kramer in Schaeffer’s Investment Research.

The growing popularity of Macau as a casino hub should bode well for Wynn Resorts, Limited (WYNN)—which has stakes in both the Asian colony and Las Vegas, and is expanding its presence in the former.

In fact, gambling revenue in Macau soared 10.6% in April, blowing past expectations for 6% to 8% growth.

Technically, WYNN just bounced off round-number support at $200, which is also home to its 160-day moving average—a trendline that's proved significant for WYNN.

In the six other times WYNN has tested this trendline, the shares were positive 67% of the time five days later, and averaged a 21-day return of 1.8%.

Despite advancing more than 50% over the past year, and outperforming the broader S&P 500 (SPX) during the past month, WYNN remains plagued by pessimism.

From a contrarian standpoint, however, this skepticism alludes to buying power on the sidelines, meaning the stock could benefit as the bears capitulate.

For starters, short interest soared 33% during the most recent reporting period, and now accounts for nearly 3.7 million WYNN shares. As the stock resumes its longer-term uptrend, a short-squeeze situation could translate into additional gains for the outperformer.

That pessimism is even more prevalent in the options pits, where speculators have bought to open more than twice as many WYNN puts as calls during the past two weeks.

Even more telling, that ratio stands just 2 percentage points from a 12-month peak, suggesting option buyers are picking up WYNN puts over calls at a near-annual-high clip.

In the June series of options, the out-of-the-money 190 strike is home to peak put open interest, with nearly 5,500 contracts in residence. As these short-term bears hit the exits, WYNN could extend its journey higher.

Speculators interested in wagering on a continued rally for Wynn Resorts might consider buying the in-the-money September 185 call, which was last asked at $29.50.

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