Options Trades in Wynn (WYNN): Thinking Beyond “Buy” or “Sell”

Casino stocks have been active of late, as takeover rumors spurred renewed interest in the sector. In Tuesday’s edition of Mad Money, Jim Cramer said he prefers Wynn Resorts (WYNN) to Las Vegas Sands (LVS); last week, he said WYNN was better than MGM Mirage (MGM). It appears that Mr. Cramer is bulled up on WYNN – or at least ranks it as one of the better alternatives in this active sector. At Tuesday’s close, the stock was at $76.33; it slipped modestly lower during Wednesday’s session.

Traders who like WYNN (but don’t want to spend $7,600 on 100 shares) might look into option strategies that offer a bullish play for a smaller price tag. Additionally, gaming-stock watchers who disagree with Cramer’s assessment could consider bearish options trades, which can carry a lower risk than shorting the stock outright. Below are just two examples of ways stock traders might consider using options to trade WYNN.

These are not buy-sell-hold recommendations, just a look at potential strategies, one for WYNN bulls who agree with Cramer’s opinion, and one for those investors who are bearishly inclined.

*Option prices given as of Wednesday late afternoon

Bullish Option Strategy: Bull Put Spread

WYNN bulls might consider selling out-of-the-money bull put spreads by selling one put and simultaneously buying a further-out-of-the-money put. The June 65/60 put (selling the 65 strike, buying the 60 strike) can currently be sold for a total credit of 90 cents or better. The maximum the put seller can earn is 100% of the premium collected (90 cents), which is pocketed as profit if WYNN is at or above 65 when the spread expires. Maximum risk is $4.10 per spread, and occurs if WYNN is trading south of 60 when these options cease to exist. Breakeven for this strategy is $64.10; anywhere below this level, the spread seller begins to lose money.

Bearish Option Strategy: Long Put Butterfly Spread

Those who expect future downside in WYNN could open a long put butterfly spread by buying one September 95 put, selling two September 70 puts, and buying one September 60 put. This three-legged strategy can currently be purchased for $12.32 per spread. If WYNN is trading right at 70 when these options expire, the butterfly spread buyer can collect the maximum profit of $12.68 (minus commissions). The maximum loss, meanwhile, is limited to the debit paid; the investor would only suffer this if the stock were trading above 95 at expiration. Breakeven for this butterfly is $82.68 – anywhere above this, the spread buyer begins to lose money. Anywhere below this level (even if WYNN crashes all the way to zero), the trader will make some or all of the maximum profit. At the 60 strike and below, gains are capped to $2.68 (the maximum profit minus the difference between the lower put strikes).

Are you siding with Cramer on his WYNN opinion, or do you have a bearish take? Let us know your thoughts in the comment section below.

If you are new to options and still trying to get your feet wet, it’s helpful to start by trying your trades in a virtual trading account .

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