Multi-level trade signals
- WYNN call volume 20 times average on Monday
- Activity appeared to be mix of liquidations and new positions
- Stock near high of trading range on Tuesday
Many traders watch unusual options activity for potential “under-the-radar” signals about which way a market may be leaning, but as the following example shows, what happens in the options market can sometimes appear to clash with what’s happening in the underlying stock.
On Monday morning, LiveAction showed call options volume in Wynn Resorts (WYNN) was nearly 85,000—around 20 times average:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Given the company released earnings after last Thursday’s closing bell, many traders may have been surprised to see such heavy volume, especially since the stock closed Friday little changed, and was still trading around the same level early Monday.
Traders who dug into WYNN’s options chain probably would have first noticed the 36,000-contract trade in the September $80 calls (the stock was trading around $107-$108). But with open interest (OI) a little above 36,000, many traders likely suspected—correctly—this was a liquidation of a large position that was opened on May 22. On Tuesday, OI was down to 621 contracts.
Stopping there would have made yesterday’s activity seem much less interesting—a large trader getting out of the market instead of getting into it.
It would also have been misleading, since an even bigger trade—47,000 contracts—occurred in the December $95 options. In this case, OI was only 481 contracts, which suggested a large trader was getting into the market. Whether this was an unrelated trade or constituted the same trader “rolling” the September position (plus nine thousand or so extra contracts) into the higher-strike December call is impossible to know. Tuesday’s OI jumped to 47,000, confirming a large trader had entered (or was still in) the market.
On Tuesday, WYNN added to Monday’s rally with a 3.4% intraday gain that pushed prices to the top of their recent consolidation, roughly 70% above the nearly three-year low they hit in early April:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
If this chart implies a possible breakout above short-term resistance, the monthly chart below shows WYNN is just now testing its 2024 highs, and faces a potentially more significant challenge around its 2023 highs (roughly $118):
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
This perspective shows a stock facing several other overhead targets or hurdles (depending on one’s perspective) before it could get anywhere near its 2014 record highs around $250.
There are probably two basic ways to interpret this activity in WYNN. First, a large trader bought calls in anticipation of, at least, a breakout above near-term resistance, if not a more sustained rally. Alternately, a large trader sold calls expecting the stock to stall out and/or turn lower, possibly as it faces resistance at its past highs.
For now, this week’s options trading represents the establishment of a significant position—the 47,000 December calls represent a stock position worth $446,500,000.
Today’s numbers include (all times ET): EIA Petroleum Status Report (10:30 a.m.).
Today’s earnings include: Dillard's (DDS), Deere (DE), Brinker (EAT).
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