Resort and casino operator Wynn Resorts (WNN) has rallied 53 percent in the past year. One trader sees a reversal playing out at some point by 2025.
That’s based on the January 2025 $47.50 puts. With 646 days until expiration, 3,000 contracts traded compared to a prior open interest of 166, for an 18-fold rise in volume on the trade. The buyer of the puts paid $2.46 to make the bearish bet.
Shares recently traded for just over $109, so the stock would need to be cut in half for the option to move in-the-money. And shares would need to move below their 52-week low of $50.20 per share.
Despite the strong move higher in shares, Wynn Resorts hasn’t earned a profit over the past year, and revenues have dropped by 4 percent. The casino space is highly cyclical, and a slowing economy could weigh on shares moving forward.
Action to take: With shares trading at 73 times forward earnings, the stock is overpriced right now. Interested investors should wait for a drop lower.
For traders, the puts are an inexpensive and long-term play. They could perform well on a slowing economy and any weakness in the casino and travel and tourism space between now and 2025. Traders can likely see high-double-digit gains on a big drop in casino names before the option expires.
Disclosure: The author of this article has no position in the company mentioned here, and does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.