Liz here! Feeling a bit nostalgic today…
Many years ago, I took a long, cross-country summer road trip with my first husband (God rest his soul). We started out in Baltimore and made a massive, meandering (frequently arguing) loop through almost all of the Western and Midwestern states.
The highlight of the trip was Las Vegas, where I passed out from the 110-degree heat right outside the Excalibur and subsequently did a weird, restorative perfumed inhaler treatment, like very high-tech smelling salts, inside the Bellagio.
(We stayed in the Paris, which, let’s just say, was definitely not as high-end inside as it is outside.)
When I hopped on the phone with Garrett Baldwin yesterday, I got a strange sense of déjà vu. Garrett, our resident commodities and supply chain expert, sees a lot of profit opportunity out in Nevada right now – one big story developing in Vegas and one in Carson City, as we see stocks sell off like Cirque du Soleil tickets this week.
As he was talking about it, I could almost feel that 110-degree dry heat and smell the weird perfume inhaler.
There’s a lot of ground to cover here, much like a road trip, so I’m going to break this profit story up into a scenic two parts. Today we’re going to head to Vegas for the Nickel Slots play — this is actually almost literal, as we’re shorting a casino.
Then tomorrow (early!) we’ll get back in the car and head out to Carson City for Dollar Slots.
Welcome to fabulous Las Vegas. Here’s how to score 227% at Wynn.
China’s Imploding – And the Infection is Spreading from Their Vegas to Our Vegas
Before I even get into any of this, I want to make sure you’re tuning in every day to Money Morning LIVE. You’re going to get live trade ideas and guidance for navigating this week’s selloff that you won’t hear anywhere else.
As I spoke to Garrett Monday, all the major indices were taking drunken stair-steps downward, with the Dow falling 614 points to post its worst performance in two months. Garrett says he is “sitting in cash,” and you should probably be, too.
Part of the problem is that a couple of big, scary things are on the agenda for this week, and it’s spooking markets. (I always get this image of the market as a really big skittish horse that saw a piece of paper. And then another piece of paper. And then more paper. Put blinkers on, dagnabbit.)
Today’s Federal Reserve meeting is one of those pieces of paper. At some point Wednesday afternoon, we’ll know whether or not the Fed plans to cut back on buying government bonds – a “taper” that would mean less support for the markets.
Plus, we’ll find out soon if the government will have enough money to pay its bills in October, or if we’ll have to default.
Fun stuff!
The other big thing – that ultimately trickles down to our Vegas play – is massive unrest in China. Evergrande – one of China’s biggest property developers, and its #1 most indebted – is set to default on Thursday when $8.3 million in interest (that it can’t pay) comes due.
If Evergrande defaults (no COVID rent deferments for you, sorry!), markets will start seriously worrying about the stability of China’s overall financial system, which will then spread contagion and fear, like a virus, through the rest of the world. Sounds familiar, somehow.
Years ago, our research team had an idea for a commodities trading service based around the “Butterfly Effect” (I think we may have even called it “Butterfly Trader” at one point). One little ripple in one market causes wider ripples in other markets until, eventually, the chain reaction causes a massive quake.
We couldn’t figure out a way to promote it without sounding corny (or referencing that one Simpsons episode), but every time Garrett starts talking about supply chain, I still think about “Butterfly Trader”. That’s what happening here.
The Evergrande default is just one piece of a bigger “wall of worry” around China right now. The government’s recent crackdowns on big business are already spreading concern (AK’s had a few good pieces on that inProfit Pregame lately) – with stringent consolidation of big tech and education.
Oh, yes, and casinos.
Famously featured in “Skyfall,” Macau is the “Vegas of Asia” with over 40 casinos (it actually overtook Vegas gambling revenues in 2007).
And as part of China’s ongoing regulatory fervor, it’s announced that it’s sending government officials to spy on Macau’s casinos day-to-day, supervise operations, and enforce rules.
It’s hard to have fun while Big Brother is watching you (I am a big sister and can confirm).
Morningstar immediately cut price targets for casino operators in Macau on the news, and shares of those companies have already begun to dip. Melco Entertainment, Sands China, and Wynn Macau all slid by a third or more last week.
Which brings us, butterfly-style, to Wynn Resorts, Limited
(NASDAQ: WYNN).
Wynn’s Losing, But We’re Wynning (Sorry, I Had to)
Sean (my first husband) and I didn’t go to Wynn while we were in Vegas, because frankly, from the outside, I thought it looked boring. Big old slab of expensive high-rise.
I understand that all the “silly” casinos will eventually vanish and all that’s left will be generic luxury – but while they’re still there, give me my Caesar’s Palace and my Luxor. (I’ll skip Circus Circus, though.)
When I saw that WYNN was tanking this week, I felt a tiny, unholy frisson of glee. Fully two-thirds of Wynn’s revenue comes from their “VIP” casino business in Asia – they’ve got only two buildings in Macau (Wynn Macau and Wynn Palace), but those two made up nearly half of their total operating revenue in Q2.
So the China mess has hit them hard. WYNN shares closed down 1.4% yesterday and they’ve cratered 22% over the past week, reaching their lowest point since November 2020 – while analysts hop off right and left like the little rats that they are.
(In the middle of this, Wynn also borrowed $1.5 billion, which isn’t a good look.)
Garrett says, “If you’re looking to short WYNN, options are JUICED.” (Jim Chanos – the legendary short seller who predicted Enron’s demise – is shorting this, so you’re in good company.)
Garrett’s play here is a November bear put spread – as with many of our Nickel Slots plays, you’re simultaneously selling and buying puts on a stock so you can bet on more downside with limited risk. Your downside risk is limited to the net cost of the spread, but your upside is limited, too.
Here’s Garrett’s quick over/under on this trade:
- Upside is 227% if WYNN goes down to $60
- Max upside is 347% if both options move into the money
- Downside is 100% — $153
- Probability of profit: 33%
Even if WYNN only gets to $75 by mid-October, you’ll still see a 35% return. Not bad…not bad at all.
Here’s what to do:
NICKEL SLOTS
Actions to Take: SELL-to-OPEN WYNN November 19 $70.00 Puts ( For a maximum debit of $1.53 for the spread. |
In case you’re wondering, I beat the house in Vegas. I made $11. I then spent it promptly in the gift shop on Eiffel Tower earrings, so ultimately, I suppose the house did win. But I want you to know that I’m lucky and in general, you should listen to my recommendations.
We’ll be on the road again tomorrow with the second half of Garrett’s Wild West profit trip, this one centered in Carson City. Make sure you have snacks from Love’s, the world’s best travel stop. (Privately owned, unfortunately, or I would be all over that.)
Liz