Options Corner: The Whales Are Betting Big On Wynn Resorts Despite Slumping Consumer Confidence

The smart money or colloquially the whales do things a little differently from everybody else, placing them on loftier ground. One example of this contrast comes courtesy of casino operator Wynn Resorts, Limited WYNN. Because of challenging economic circumstances stemming from inflation to tariffs, it's easy to assume that WYNN stock would be a loser under the present environment. However, the opposite is true, warranting a closer look.

To be fair, both from an initial glance and a deeper assessment, WYNN stock would seem a terribly risky long wager. As a wave of pessimism has swept American households, with the Consumer Confidence Index plunging to its lowest level in over a year. The Trump administration's trade war has compounded ongoing concerns of inflation and equity market volatility, contributing to the dour ambiance.

Nominally, the aforementioned index fell by 7.2 points to 92.9, representing its fourth consecutive monthly decline. Per data released by The Conference Board, it's also the lowest reading since late 2022. Because of the wider implications, the major indices were muted, with the S&P 500 struggling to keep its head above parity.

Under these conditions, one normally wouldn't expect WYNN stock to outperform. Yet on Tuesday, the equity finished the day 1.3% higher. Fundamentally, the counterintuitive move is difficult to explain other than a sentiment divergence. When filtered for income level, all consumer groups expressed deteriorating sentiment except for households earning above $125,000 annually.

It's also possible that particularly young consumers' penchant for travel and experiences may have led to positive vibes for WYNN stock. Still, The Conference Board earlier reported that the number of Americans planning vacations in the next six months hit a 15-year low, excluding COVID-19. Therefore, the bullishness in WYNN is an incredibly contrarian move.

WYNN Stock Pops from Smart Money Demand

Despite the rather ugly backdrop that Wynn Resorts finds itself in, two major developments from the smart money have materialized. First, WYNN stock has been a beneficiary of insider buys so far this year. Most recently, 10% owner Fertitta Entertainment acquired 1.7 million shares of WYNN, leading to a total transaction of nearly $145.71 million.

When insiders sell shares, such transactions are difficult to decipher accurately as there could be several reasons why, including completely mundane ones. On the other hand, when insiders buy shares, the interpretation is straightforward: they anticipate capital appreciation.

The second catalyst for WYNN stock is that the smart money is moving into the underlying derivatives market. Earlier in the day, Benzinga's options scanner identified unusual activity, with net sentiment leaning optimistically. Interestingly, the most bullish trade was for sold $87 puts with an expiration date of March 28.

To quickly recap, put holders have the right but not the obligation to sell the underlying security at the listed strike price. On the other end of the trade, put sellers (or writers) receive income for underwriting the risk that the security in question won't fall. If it does fall below the breakeven threshold, put sellers may be obligated to buy the stock, a process known as assignment.

From Tuesday’s unusual options activity, retail investors may assume that the smart money doesn't see WYNN stock falling materially below $87. Nevertheless, in the worst-case scenario, the smart money is also apparently comfortable owning shares at around $85.35, which is the strike price minus the premium received (or the bid price of $1.65).

Daring traders can leverage this market intelligence and deploy an aggressive options trade. It must be noted, though, that one of the main risks here is that WYNN stock over the past six years suffers from a negative bias. A long position held for any given eight-week period only has a 45% chance of rising, which isn't great.

Still, not all hope is lost. The nuance is that when WYNN stock encounters modest momentum — such as its current run of 2.5% over the past five sessions — the probabilities of upside tend to be pushed forward to the first few weeks following said momentum.

Derivative Wagers for the Aggressive Gambler

For aggressive traders looking to extract quick profits, the 86/89 bull call spread expiring this Friday may be tempting. This transaction involves buying the $86 call (at a time-of-writing ask of $286) and simultaneously selling the $89 call (at a bid of $82). The proceeds from the short call offset the debit paid for the long call, resulting in a net cash outlay of $204.

In the above trade, the maximum reward is the difference between the strike prices (multiplied by 100 shares) minus the cash outlay or $96. This translates to a payout of a little over 47%, which is triggered should WYNN stock hit the short strike target of $89 at expiration. While the payout isn't the most generous, it's a realistic target given Tuesday's intraday high, which exceeded $89.

Another adventurous trade to consider is the 89/91 bull spread for the options chain expiring April 11. This trade attempts to advantage WYNN's statistical tendency of rising in the early weeks following modest momentum before eventually tapering off. While far riskier, the temptation is that this transaction currently offers a maximum payout of 115%.

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