As Wynn Resorts, Limited
(NASDAQ:WYNN) prepares to unveil its earnings after tonight's close, option players are piling up on calls. Around 8,200 contracts have crossed the tape thus far, or more than four times the average intraday call volume. Meanwhile, fewer than 2,400 puts have changed hands. Short-term speculators are honing in on the stock's 135 strike, hoping that a strong quarterly showing will push the security north of this overhead mark.
Diving right in... WYNN's May 135 call has seen 1,323 contracts change hands, 78% at the ask price. Implied volatility was last seen 2.5 percentage points higher, suggesting that some of today's activity is of the buy-to-open variety. These out-of-the-money calls are being purchased for a volume-weighted average price (VWAP) of $3.34, meaning traders will profit with each step above $138.34 (strike plus VWAP) Wynn Resorts takes through the close on Friday, May 17 -- when front-month options expire. Delta for this call is currently docked at 0.48, or 48%, suggesting a roughly 1-in-2 chance the option will be in the money ahead of expiration.
Meanwhile, option players are also scooping up the shorter-dated weekly 4/26 135-strike calls for a VWAP of $2.10. A healthy portion of these calls have crossed at the ask price, implied volatility has surged 38.2 percentage points, and volume is outstripping open interest, making it safe to assume new bullish positions are being initiated. Breakeven for the calls is $137.10, or 2.2% above the stock's current perch at $134.12.
Should Wynn Resorts fail to muscle above the $135 mark by the options' respective expiration dates, the most both groups of optimists have risked is the initial premium paid. However, according to the stock's Schaeffer's Volatility Index (SVI), this isn't much. Despite the company's impending earnings announcement, the equity's SVI of 32% ranks lower than 95% of similar readings taken in the past year. Simply stated, WYNN's short-term option premium is relatively inexpensive at the moment.
Widening the sentiment scope reveals that today's campaign for calls diverges from the withstanding trend
seen in WYNN's options pits. Throughout the course of the past 50 sessions, traders have bought to open 152 puts for every 100 calls at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, the resultant put/call volume ratio of 1.52 ranks higher than 98% of similar readings taken in the past year, implying puts have been scooped up over calls at a near annual-high clip in recent months.
On the charts, the equity has been guided higher by its 32-week moving average since mid-November, with the shares up nearly 30% from their Nov. 15 low of $103.34. More recently, Wynn Resorts has put in a solid performance against the S&P 500 Index (SPX), and has bested the broad-market index by more than 7 percentage points throughout the past 40 sessions.
As touched upon, the casino concern will unveil its quarterly results after the market closes tonight. The company has a mixed history in the confessional, falling short of bottom-line expectations in three of the past four showings. However, the stock experienced moves to the upside in the subsequent sessions following each of its last two reports. For Wynn Resorts first quarter, analysts are calling for a profit of $1.56 per share.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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