Casino stocks are on the move this week, bolstered by waning concerns over the Covid-19 delta variant and a resurgence in small-cap stocks. And it’s not just casinos enjoying the tailwind. Other reopening stocks like airlines and cruise lines are turning nicely higher as well.
So to celebrate the surge, I’m highlighting three potentially lucrative options trades.
I’ve scanned the most popular casino stocks and discovered three price patterns that beckon to buyers. Two of them just blasted above resistance this week and are in the infancy of their turnaround. The third held firm in the face of the recent selling and is the obvious outperformer of the bunch.
What I find particularly enticing about the following names if they all offer liquid options contracts, making it easy to build trades.
My picks are:
- Wynn Resorts (NASDAQ:WYNN)
- Las Vegas Sands (NYSE:LVS)
- MGM Resorts (NYSE:MGM)
We’ll follow my usual path: a brief chart read followed by a smart options trade idea.
Casino Stocks: Wynn Resorts (WYNN)
The past two trading sessions in WYNN stock have been mighty impressive. Prices jumped 12.6% on heavy volume. The groundswell in participation suggests institutions are wading back into the waters. If the accumulation persists, we should see the newfound momentum continue. While we may not go higher on a rope, the relationship between pivots should shift from lower lows and highs to higher ones.
As a trader, it’s important to know when you’re wrong. Consider today’s bullish read invalidated if WYNN falls back below $90.
If you want a high probability of profit, consider the following credit spread.
The Trade: Sell the Oct $85/$80 bull put spread for 60 cents.
Las Vegas Sands (LVS)
The read for Las Vegas Sands is similar to Wynn, with one big exception. LVS stock has been hit much harder over the past quarter. In fact, its share price returned to the March 2020 pandemic low. So much for the recovery!
One way to respond is to avoid LVS at all costs due to the massive relative weakness. However, we could spin this as a second chance of sorts. So if you missed last year’s sharp recovery, well, here’s your shot at a re-do.
The volume yesterday was monstrous. Over 24 million shares traded, marking the most active session of the past year. Over the past three days, LVS stock is up 15%. It took out the prior resistance pivot and the 20-day moving average. This is the most compelling bottoming action we’ve seen since the downtrend began last March.
LVS is cheap enough, and implied volatility is high enough, to make naked puts compelling.
The Trade: Sell the Oct $35 naked put for 54 cents.
Casino Stocks: MGM Resorts (MGM)
MGM Resorts takes the final spot in today’s casino stocks gallery. And from a trend structure perspective, we’ve saved the best for last. This week’s rally catapulted MGM back above its 50-day moving average and placed it within striking distance of the 52-week high. Unlike its predecessors in this gallery, MGM carved out higher pivot lows over the past few valleys. This suggests demand has been building beneath the surface.
With prices up four days in a row, I wouldn’t be surprised if we see a slight pause in the coming days. Regardless, the trend is now up, and dips should be viewed as a gift.
Like Las Vegas Sands, MGM shares are low enough to create a nice return on investment for short puts.
The Trade: Sell the Oct $35 put for 52 cents.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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