Schaeffer's Midday Options Update Features Halliburton and Wynn Resorts.
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Options Update: A Wynn-Wynn Situation
U.S. equities were mixed as the market rounded the corner into afternoon trading. The Dow Jones Industrial Average notched (say it with me, folks) another new all-time high while the S&P 500 Index continues to wrestle with the 1,400 level and is virtually unchanged. The Nasdaq Composite is modestly lower and is near its intraday nadir.
U.S. housing starts plunged 14.6 percent during last month to a seasonally adjusted annual rate of 1.486 million - the lowest level since July 2000, according to the Commerce Department. Building permits also fell, dropping 6.3 percent to a seasonally adjusted annual rate of 1.535 million, the lowest in nine years. Wall Street economists were expecting a drop of 4.5 percent and a marginal drop in permits.
Most-Active Options Update
At 1:56 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,308.5) has edged 0.02 percent higher, while the S&P 500 Index (SPX - 1,398.48) is down 0.09 percent. The Nasdaq Composite (COMP - 2,439.8) has shed 0.38 percent. At 1:58 p.m. Eastern Time, 5,248,485 calls have changed hands compared to 2,806,923 puts, equaling a single-day put/call volume ratio of 0.53. The CBOE's equity put/call volume ratio stands at 0.62, while the ISE's ratio weighs in at 0.77.
Option Activity Follow-Up
Yesterday's (http://www.schaeffersresearch.com/commentary/observations.aspx?click= home&ID=17747) (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) featured stock was Halliburton (NYSE:HAL), which saw heavy action on its January 30 call (HAL AF). The session wrapped up with nearly 31,000 contracts trading at this strike. Open interest subsequently shifted from 69,000 contracts to 50,400 contracts, suggesting that some of yesterday's activity consisted of traders selling off their bullish bets.
The option's implied-volatility readings confirm this suspicion, as they dropped to 32.6 percent from 36.9 percent yesterday on the option in question. Meanwhile, the equity's Schaeffer's put/call open interest ratio (SOIR) moved to 0.50 from 0.46, rising to the sixth annual percentile (from the first). This is still considered an "extreme" level, implying notable optimism from the speculative crowd.
I almost had to chuckle when reading through the active-options tables this afternoon; seems as though the powers that be want me to write about Wynn Resorts (NASDAQ:WYNN). Fitting that I turn my thoughts to the casino industry; my Thursday night was punctuated by my husband shuffling in very late (technically, it was well into Friday morning) after a night at the gambling boats with his boss. At least he left a winner. Wynn Resorts offers high rollers the lap of luxury at the Wynn Las Vegas, which offers 2,700 hotel rooms, 20 restaurants, and an 18-hole golf course. Oh - and a Ferrari and Maserati dealership. For the gamblers among us, the Wynn's casino features about 2,000 slot machines and 135 table games.
What's going on with WYNN shares today to prompt such interest from options traders? Not a whole lot. Ahead of the open, the stock was downgraded to "hold" from "buy" at Citigroup; the shares are currently down about two percent. Earlier this week, the company announced expansion at its Wynn Macau location to add a resort hotel with a casino. The new development may open as soon as February 2007. On Monday, WYNN gapped higher after announcing a special dividend and reporting a shift in management.
The stock's latest upward charge has lifted it beyond the 80 mark, which seemed content to act as resistance on the shares during the past eight months or so. WYNN's heavy-volume press northward took the shares to new all-time highs in last week's trading.
This dramatic rally has likely spooked some short sellers, forcing them out of their bearish positions. As of the last reporting period, nearly 17 percent of WYNN's available float for public consumption was sold on the short side, raising the odds for a short-covering rally. In October, the number of shorted WYNN shares dropped by 19 percent, suggesting that a short-covering drive was already in progress. Should this momentum continue in upcoming weeks, WYNN could benefit from the additional buying power inherent in a short squeeze.
Analysts are split on WYNN, assigning four "buy" ratings, five "holds," and a lone "strong sell." If WYNN manages to hold on to most of its recent gains, it could garner additional respect from the Street.
Finally, moving to options, which are running rampant on WYNN in today's trading. Heading into this expiration Friday, Schaeffer's put/call open interest ratio (SOIR) for WYNN stood at 1.08, in decidedly neutral territory (in the 50th annual percentile). Today's session has seen tens of thousands of contracts trade across the December and January series. Specifically, on the eight options in question, a total of 606,000 options have already changed hands; this morning, this octet was collectively home to fewer than 14,000 open calls. With WYNN trading above the 90 level, all of these calls changing hands today are comfortably in the money (and fairly pricey to boot). Not surprisingly, there have been a lot of block trades changing hands, and a lot of "spread" indications. It's probably a wise choice to wait and see how things shake out on Monday with regard to open-interest translations, implied volatility changes, and expiration-related shifts.
Click here to see the weekly chart of WYNN since September 2005:
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About Schaeffer's Investment Research (www.SchaeffersResearch.com)
Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method .
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|Date:||Nov 17, 2006|
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