When the initial disruption of the COVID-19 pandemic capsized the global economy, Wynn Resorts (WYNN) and its ilk were among the companies bearing the brunt of the damage. With government agencies curbing non-essential activities, Wynn’s management could do little besides hope for the best. While WYNN stock remains far from being out of the woods, unusual trading activity may bode well for the underlying business.

On a year-to-date basis, WYNN stock gave up 14.6% of equity value, which is slightly better than the performance of the S&P 500 index. However, Wynn shares’ near-term performance massively outranks the equities benchmark. In the trailing month, WYNN gained 28.5%. In contrast, the S&P 500 rose a little over 3% during the same period.

Naturally, much of the enthusiasm toward WYNN stock centers on the issuing company’s third-quarter earnings report. According to Zacks Equity Research, the resorts and casinos operator posted an adjusted loss of $1.20 per share, which ran in line with Wall Street’s consensus target. In the prior year, the company posted an adjusted loss of $1.24 per share.

On the revenue front, Wynn delivered $889.7 million, surpassing the consensus target of $852 million. Unfortunately, this sales tally slipped 10.5% on a year-over-year basis. As Zacks mentioned, “[t]he downside was mainly due to the dismal performance of Wynn Palace and Wynn Macau.”

While problematic, these properties are of course tied to Wynn’s Macau market footprint, which must abide by China’s draconian zero-COVID policy. Further, with Beijing recently expanding lockdowns after a period of appearing to relax certain protocols, the earlier rise of WYNN stock from the Q3 sentiment lift appears to court trouble.

Nevertheless, it may be worthwhile for investors to keep this casino operator on their radar.

Options Volume Lights Up for WYNN Stock

Following the close of the Nov. 25 session, WYNN stock represented one of the top listings for unusual stock options volume. Per Barchart.com, this metric “shows the difference between the current volume and the average volume over the past month, highlighting unusual activity.”

For WYNN stock, the one-month percentage change in volume came out to 85.27%. Call volume came out to 35,362 contracts while put volume registered as 44,003. To be clear, for last Friday’s session, the put/call open interest ratio stood at 1.07. Typically, the delineation between bullish and bearish sentiment is 0.70, with figures higher than this threshold reflecting traders acquiring more puts than calls.

Certainly, any rise in bearish activity toward WYNN stock is understandable. Again, with China resuming its draconian zero-COVID policy, the narrative for Wynn Resorts weakens considerably. As well, there’s a contrarian argument to be made about WYNN’s technical performance. While technical indicators suggest it’s a buy, the fundamentals (i.e. the COVID headwind) implies that the near-term trajectory could be bearish.

Still, those with a patient outlook could be rewarded by betting on WYNN stock for the long haul. For example, three months ago, analysts rated shares as a “moderate buy,” breaking down as three strong buys and six holds. Though the current month’s assessment remains the same, the break down pivoted slightly better to four strong buys and five holds.

A Matter of Gambling Culture

Moving forward, one critical factor to keep in mind about WYNN stock centers on the east/west gambling culture divide. In Wynn’s Las Vegas operations, casinos represent one of the lowest contributors toward total operating revenue. In Q3 of this year, casino sales amounted to 24.7% of the total. In the year-ago quarter, the allocation was 23.7%.

On the other end, it’s almost the opposite situation with Wynn Macau. In Q3 2022, casino revenue represented 56.6% of the total. In the year-ago quarter, this metric was 75.2%. Put another way, once circumstances in Macau (and China more broadly) normalize, casino-related revenues can once again decisively take pole position.

Further, this eventual normalization is crucial for WYNN stock because casino operations allow the underlying company to generate multiple sales events per unit of time relative to other segments. For instance, a dealer can make a killing at the blackjack table, which ultimately pads Wynn’s bottom line through a compounding effect.

However, segments such as rooms and food and beverage represent “fixed” revenue channels. One room can only be allocated to one guest per night. Also, a specific lobster can only be served the one time.

For now, nearer-term pressures dictate that traders hinge more toward the bearish side of the equation. But eventually, the longer-term thesis appears more beneficial for those bullish on WYNN stock.

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