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Zona de Azar – Bullish Options Plays On Three Gambling Stocks

China Macau.- Although U.S. consumer spending remains relatively tame, global gamblers are still hitting up casinos at a noteworthy pace, especially in Macau.  According to the Macau government, the world’s largest gambling market saw gaming revenue rise a year-over-year 52.4% in June, thanks to flush-with-cash Chinese tourists. As such, gaming revenue in the former Portuguese enclave is expected to outpace that of Las Vegas by at least four-to-one in 2011.

Against this backdrop, we decided to take a closer look at a few casino stocks with the potential to capitalize on an exodus from bearish positions: Wynn Resorts (WYNN ), Melco Crown Entertainment (MPEL), and Penn National Gaming (PENN).

Wynn Resorts (WYNN)

Like Las Vegas Sands, WYNN boasts some of the greatest exposure to Macau in the sector, thanks to its Wynn Macau Ltd. unit. What’s more, the stock has also outperformed the broader equities market on the charts, outpacing the S&P 500 Index (SPX) by more than eight percentage points during the past 60 sessions, on a relative-strength basis. From a longer-term perspective, the security has advanced more than 88.5% during the past 52 weeks, led into the black atop double-barreled support at its 10-week and 32-week moving averages — a duo that’s contained all but one of WYNN’s weekly closes since March 2009.

However, despite the equity’s sound fundamental and technical set-ups, not everyone on the Street is convinced of WYNN’s strength. According to Zacks, only seven out of 24 analysts deem the security worthy of a “buy” or better rating, leaving plenty of room for upgrades to fuel future gains. Plus, Thomson Reuters pegs the consensus 12-month price target at $145.36 — representing a discount to WYNN’s closing price of $149.57 on Friday, and opening the door to a slew of price-target boosts from the bearish holdouts.

Meanwhile, the stock’s Schaeffer’s put/call open interest ratio (SOIR) of 1.05 indicates that puts outnumber calls among options slated to expire within three months. Digging even deeper, we find that peak put open interest in the July series of options sits at the out-of-the-money 140 strike, with more than 3,000 contracts in residence. Going forward, this accumulation of bearish bets could provide an added layer of options-related support for WYNN in the near term.

To wager on an extended quest for new highs for WYNN, traders may want to consider the stock’s October 130 call.

Melco Crown Entertainment (MPEL)

Like WYNN, MPEL also has a sizable stake in Macau. In fact, the company is a joint venture chaired by the son of Macau kingpin Stanley Ho and Australian James Packer. Furthermore, MPEL has been a broad-market technical standout, outshining the SPX by a whopping 56.7% during the past two months. In light of the robust gaming figures, the shares soared to a fresh three-year high of $13.75 on Friday, adding to their year-to-date gains of more than 110%.

Also like WYNN, though, MPEL remains plagued by pessimism on Wall Street. The security sports a SOIR of 1.21, indicating that puts are the options of choice among near-term speculators. What’s more, this ratio stands just two percentage points shy of a 52-week peak, suggesting near-term options traders have been more put-heavy on the stock just 2% of the time during the past year.

In the front-month series, the out-of-the-money July 9 put is most popular, with about 15,600 contracts in residence. An unwinding of hedges related to these puts could create a contrarian tailwind for the outperformer.

Elsewhere, a slew of price-target adjustments could be on MPEL’s horizon, as analysts react to the stock’s impressive technical achievements of late. According to Thomson Reuters, the average 12-month price target sits at a meager $12.46, representing a discount to the security’s new high of $13.75.

Meanwhile, the equity’s Schaeffer’s Volatility Scorecard (SVS) of 86 indicates that options are attractively priced relative to the probability for an outsized move by the shares. To bet on a continued uptrend for MPEL, traders may want to consider the stock’s October 8 call.

Penn National Gaming (PENN)

Finally, while PENN is more of a domestically centered gaming company, the shares have held their own, advancing more than 16.8% since the start of the year. For comparison, the broader SPX has tacked on just around 6.5% in 2011. Guiding the stock higher have been its 10-, 20-, and 32-week moving averages, which have teamed up to provide triple-layered support since July 2010. More recently, the stock seems to have found a floor in the $37-$38 neighborhood — a former area of resistance that switched roles in early April — and is now within striking distance of a new three-year high.

Again, though, the Street seems to have ignored PENN’s impressive price action of late. During the past 10 sessions on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ PHLX OMX (PHLX), the stock has racked up a put/call volume ratio of 0.92 — in the 73rd annual percentile. Or, simply put, options traders have bought to open PENN puts over calls at a quicker-than-usual clip during the past couple of weeks.

In the same vein, the equity sports a SOIR of 0.83 — in the 75th percentile of its annual range. In other words, short-term options players have been more pessimistically positioned just one-fourth of the time during the past 12 months.

Meanwhile, short interest grew by 1.3% during the past month, and now accounts for a healthy 5.2% of PENN’s total available float. In fact, at the stock’s average pace of trading, it would take more than six sessions to buy back all of these bearish bets.

As PENN extends its climb on the charts, a capitulation by the skeptics in the options pits, or a short-squeeze situation, could stoke the security’s bullish flames. To take advantage of a continued ascent, traders may want to consider the stock’s October 35 call.

Fuente: Forbes by By Andrea Kramer

Editó: @_fonta

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