Last week, Macau's Gaming Inspection and Coordination Bureau said gambling revenue in August rose 40% from the year-earlier period – a notable slowdown compared to July's 70% year-over-year gain. Furthermore, Deutsche Bank analyst Karen Tang opined that next month may not be much better for the gambling industry in Macau.
"We think September could be softer given that visitors tend to delay their travel plans ahead of the Golden Week holidays in October," she wrote in a report. (For the rare few without Google access, "Golden Week" refers to the week of Oct. 1, which is the National Day of the People's Republic of China. In other words, think Fourth of July, only longer.)
And, coincidentally, the October series of options has been most popular among WYNN call sellers lately. During the past three sessions, call open interest at the October 90 strike has escalated by more than 3,000 contracts – many of which were sold to open late last week. In fact, the round-number 90 strike is now home to peak call open interest in the back-month series, with more than 3,500 contracts in residence.
By writing the October 90 calls to open, the sellers are betting the shares of WYNN will settle south of the $90 level when October-dated options expire. In this best-case scenario, the round-number calls will expire worthless, allowing the seller to pocket the initial premium received – which also represents the maximum potential profit on the play.
Technically speaking, it doesn’t take a rocket scientist to figure out why the aforementioned call traders expect the shares of WYNN to run into resistance in the $90-$95 neighborhood. Though the stock has added more than 55% during the past year along the support of its 10-week and 32-week moving averages, the $90-$95 region has rejected the equity's rally attempts in 2010. What's more, this area played the part of support for WYNN from late 2006 to mid-2008, reiterating the region's significance on the charts.
Plus, not only is the 90 strike most popular among back-month call traders – it’s also home to peak call open interest in the front-month series. More specifically, the September 90 strike currently harbors more than 8,000 calls outstanding. This notable accumulation of bullish bets could act as an additional layer of options-related resistance for WYNN in the short term – which could increase the call sellers’ chances of capitalizing on an intermediate-term finish south of $90.
Disclosure: Andrea Kramer has no financial interest in any of the equities or products mentioned in this column.