A Way to Win with Wynn (NASDAQ:WYNN)

Looking to pick up some shares of Wynn Resorts (NASDAQ:WYNN) but can’t quite pull the trigger?  Well, why not use a cash generating strategy to earn your profit up front and get a little insurance on some Wynn shares?

Based on rates recently checked, buying 100 shares of Wynn Resorts (NASDAQ:WYNN) for $120.40/share and then selling the $120.00 December 2011 Call contract for $10.70 could net you 9.39% profit if WYNN closes above $120.00/share at the expiration date in 56 days.  Not bad for 2 months of investing and your average monthly gain would be 5.11%.  Additionally, you would have a big downside protection to $109.70, or about a 8.9% drop in stock price.

The Compound Annual Growth Rate (CAGR) on the assigned option position is 79.5%.  Yes, you read that right, 79.5% annual return!

What To Do if WYNN drops 8.9% and closes below $109.70:
If WYNN closes below $109.70 at any time during the trade, you can roll down the position by purchasing back the $120.00 December 2011 Call contract and then selling another call at a lower strike (say the $105.00 strike) and/or further date out to make up for any losses caused by having to buy the $120.00 December 2011 Call back.  If the stock recovers and you no longer want to have your cash tied up in the position, you likely can just sell out of the position for close to even money.

If shares of Wynn Resorts (NASDAQ:WYNN) continue to drop, you now own the stock for less than $109.70/share when you were originally interested in buying at $120.40/share.  That seems like a pretty sound investment.

Currently Wynn is rated a Moderate Buy according to analysts.  Over the past 12 months Wynn shares have traded between a 52-week low of $99.21 and its 52-week high of $172.58.  Shares are now trading with a P/E Ratio of 28.8 and EPS of 4.28.  Wynn Resorts, Limited, together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts.