Wynn Resorts (WYNN) showing strong consolidation at its 50-day EMA with support below at the $115 area. With the recent systemic pullback in equities implied volatility has spiked sharply, meaning option contracts are trading at a premium. Current implied volatility levels are sitting 8 percent above 20-day historical volatility levels, which offers the chance to sell premium and collect Vega contraction.
We will be utilizing a bull put spread that will collect Theta decay and Vega contraction. Using April as our expiration month, we can sell the 115 puts and buy the 110 puts for a net credit of $1.06. To find our defined risk, we subtract the credit received from the distance between the strike prices, which is $5. This gives up maximum risk (5 – 1.06) of $3.94 per.
Multiplying this by 4x gives up a maximum credit of $4.24 at expiration is WYNN’s underlying stock price closes above the sold strike (115) at expiration. Our breakeven represents the sold strike minus our credit received, which means the breakeven level at expiration is $113.94 at expiration.
We will keep a tight leash on this position in the case that the markets fail to find a bottom in the short-term here.
Trade Idea:
SELL -4 VERTICAL WYNN 100 APR 11 115/110 PUT @1.06 LMT
Trade Details:
Type: Bull Put Spread
Expiration Month: April
Breakeven Level(s): $103.94
Maximum Gains: $424
Profit Taking Level: $300
Maximum Loss(es): -$1,576
Stop Loss: -$370
