Downside put sellers in WYNN and BUCY

In this column in the last couple of days we have written how earnings season is upon us. This week roughly 20% of the companies in the S&P 500 will be reporting results. As I have pointed out in the past, when option traders buy calls or puts, they would prefer to buy an expiration month that is soon after an expected earnings if possible. As a result of that demand, option premiums can inflate around earnings time to levels that attract sellers, despite the potential for violent moves. Yesterday in Bucyrus and Wynn resorts, we saw just that type of activity.

Bucyrus International (NASDAQ: BUCY, Stock Forum) is a company that sells mining equipment. The stock has slumped along with the rest of the metals and mining stocks in the past six months from a peak around $75 to a price of $17 today. Yet despite that slide, an investor sold 17,400 Feb 12.50 puts for 40 cents yesterday. In order for the investor to make money on this put sale, the investor needs the stock to be higher than $12.10 at expiration.

The date for the official earnings announcement for BUCY has not been set yet. But based on the historical trend, earnings should be announced anywhere from Feb. 14- Feb. 19, putting them still in the Feb expiration cycle. The reason an investor might want to take advantage of this 40 cents of premium is because even when the stock touched its lows back on November 20 it still stayed above $14.50.

In Wynn Resorts (NASDAQ: WYNN, Stock Forum) we saw another large put sale. A customer sold 17,800 of the Feb 20 puts for 20 cents versus an open interest of just 822. The stock is currently trading for around $34. Like BUCY, the breakevens for this trade are well below the stocks November 20 low of $31.25.

The official date for WYNN to publish quarterly results is as yet un determined. But like BUCY, it can be inferred from past earnings announcements that the announcement should come sometime after Feb. 12, but before Feb. 20 which is expiration.

Put sales like this do not mean that investors should run out and buy stock in BUCY or WYNN. In fact, this investor selling these puts could be expressing a view that these shares have limited upside, but feels that the downside will be limited to staying above the strike price of the puts. In order to win, the investor does not need the shares to rally, just to not fall below the strike. Hardly a resoundingly bullish endorsement.

Jud Pyle is the Chief Investment Strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. http://secure2.thestreet.com/cap/prm.do?OID=011485" Click here for a free trial for Options Alerts.