Favorite Casino Stock Traders Should Avoid in June

Wynn Resorts (WYNN) stock is down 1.9% in early June, continuing a pullback from May highs and testing the $90 support level. Historical data indicates a high probability of further losses in June, with the stock averaging a 3.3% decline in the month 70% of the time over the past decade. Despite this historical trend, options traders are currently exhibiting bullish sentiment, which could create headwinds if this optimism reverses.

Analysis

Wynn Resorts Inc. (WYNN) has commenced June with a notable 1.9% decline to $88.83, marking a potential fourth consecutive day of losses and extending its retreat from the five-month high observed on May 15. The stock is currently testing a significant support level around $90. Historical performance data over the past decade reveals a strong seasonal headwind for WYNN in June, as it ranks among the top 10 worst-performing S&P 500 stocks for the month, averaging a loss of 3.3% and finishing lower 70% of the time. Despite this bearish historical precedent, current options market activity indicates a contrasting bullish sentiment. WYNN's 50-day call/put volume ratio across major exchanges (ISE, CBOE, PHLX) stands at a high 4.18, ranking in the 75th percentile of readings over the past year, suggesting a strong preference for calls over puts. Furthermore, options appear relatively inexpensive, with the Schaeffer's Volatility Index (SVI) at 33%, placing it in the low 11th percentile of its annual range, implying low volatility expectations priced in by options traders. However, WYNN has historically tended to exceed these priced-in volatility expectations, as evidenced by its high Schaeffer's Volatility Scorecard (SVS) of 99 out of 100.

Key Decisions for Investors

• Investors should note the significant historical underperformance of WYNN in June, with an average loss of 3.3% and a 70% probability of a negative return for the month over the past decade, suggesting caution in the near term.
• Consider the current disconnect between bearish historical price action for June and the prevailing bullish sentiment in the options market; a reversal of this optimism could exacerbate downward pressure on the stock.
• Given WYNN's low implied volatility (SVI in 11th percentile) and high SVS score (99/100), traders might explore strategies that benefit from an underpricing of actual volatility, while being mindful of the stock testing a key support level at $90.