Wynn Resorts Shows Unexpected Strength Amid Market Challenges

The smart money, often known as the whales in financial circles, operates differently than typical investors. A pertinent case is casino operator Wynn Resorts, Limited WYNN. Given the current economic challenges—ranging from inflation to tariffs—one might assume that WYNN’s Stock would be struggling. Contrary to this belief, the reality is quite the opposite, deserving a closer examination.

A surface-level analysis might suggest that WYNN Stock poses a significant risk for long-term investors. A pervasive wave of pessimism has gripped American households, indicated by the Consumer Confidence Index, which has fallen to its lowest level in over a year amid concerns from the ongoing trade war and equity market fluctuations.

According to data from The Conference Board, the index dropped by 7.2 points to 92.9, marking its fourth consecutive monthly decline. This decline has significant implications for broader market performance, as major indices remained subdued, with the S&P 500 barely maintaining its status.

Under these conditions, it wouldn’t be expected for WYNN Stock to shine. Yet, on Tuesday, WYNN’s equity increased by 1.3%. This counterintuitive increase may suggest a divergence in sentiment. A deep dive into consumer sentiment data reveals that only households with annual incomes exceeding $125,000 displayed positive sentiment, while others experienced declines in confidence.

Another consideration could be the desire of younger consumers for travel and experiences, possibly boosting positive perceptions regarding WYNN Stock. However, The Conference Board reported that plans to travel among Americans have hit a 15-year low, excluding the pandemic, further highlighting the contrarian nature of WYNN’s bullishness.

WYNN Stock Gains Ground from Smart Money Interest

Despite a challenging environment, two notable developments indicate the influence of smart money on Wynn Resorts. First, insider buying has notably increased this year, highlighted by a recent acquisition of 1.7 million shares by 10% owner Fertitta Entertainment, valued at nearly $145.71 million.

While insider selling can indicate various factors that are not always clear, insider buying typically suggests an expectation for capital appreciation.

The second factor driving interest in WYNN Stock is the movement of smart money into the derivatives market. Benzinga’s options scanner recently flagged unusual market activity, showing a net optimistic sentiment. The most bullish activity involved selling $87 puts with a March 28 expiration date.

In short, put holders retain the right, but not the obligation, to sell the security at the specified strike price. Conversely, put sellers gain income from assuming the risk that the security will not decline. If it does fall below the breakeven point, they may be obligated to buy the stock, a process referred to as assignment.

Tuesday’s unusual options activity suggests that smart money does not foresee WYNN Stock dropping below $87 significantly. In a worst-case scenario, they seem comfortable acquiring shares at approximately $85.35, calculated as the strike price minus the premium received ($1.65).

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This information allows aggressive traders the opportunity to conduct a more assertive options strategy. However, it’s important to recognize that WYNN Stock has demonstrated a negative bias over the past six years. A long position maintained for any eight-week window has only a 45% likelihood of rising, which presents a considerable risk.

Nevertheless, hope remains. Notably, when WYNN Stock experiences moderate upward momentum—as evidenced by its recent 2.5% increase over the past five sessions—the chances of further upside tend to improve in the following weeks.

Aggressive Strategies for Savvy Traders

For those willing to take on more risk, the 86/89 bull call spread set to expire this Friday may present an enticing opportunity. This strategy involves purchasing an $86 call (currently asking $286) and concurrently selling an $89 call (bidding at $82). The sale of the short call helps counterbalance the cost of the long call, resulting in a total cash outlay of $204.

The maximum gain from this transaction is calculated as the difference between the strike prices (multiplied by 100 shares) minus the cash outlay, yielding a profit of $96. This represents a return of just over 47%, achievable if WYNN Stock reaches the $89 target price at expiration, a realistic objective given it briefly surpassed that mark on Tuesday.

Additionally, the 89/91 bull spread, expiring April 11, offers a riskier yet potentially fruitful alternative. It capitalizes on WYNN’s statistical tendency to rise shortly after experiencing modest upward momentum. This trade currently presents a maximum payout of 115%, enticing for those seeking greater reward despite the increased risk.

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