Option Investor

Option Writer Portfolio - August

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Wynn Resorts (WYNN) together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts. WYNN has been sliding down the slope (see chart). However, at it's worst the company came in and boosted the shares with a massive share buy back. At $77 the stock is 40%f of its peak high of $166 last year. Earnings are due next week on July 24th. Premium is boosted ahead of the earnings and giving us an opportunity to sell the 60 Puts for $1.55 - $1.65 per contract. We are selling two contracts which takes on a larger than normal liablility. But the move up from the lows and bounce off the downtrend line gives me support for a larger position.

We are looking at a max return of 25% on the initial margin requirement which is well above our minimum of 10%. The technical risk management level is at a break of the downtrend line and the low from last Thursday. The cost basis and strike stops are much lower and would result in a huge loss on the position. However, if you are selling puts to buy the shares then you might want to stick with the lower risk management standards with WYNN and MON. If WYNN bounces up to 85 and finds resistance then we will sell the out of the money calls to hedge the earnings volatility.

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