Wynn Resorts Still Loved by Short Sellers, But Affair Could Soon End

Posted on: April 20, 2020, 09:38h. 

Last updated on: April 20, 2020, 11:26h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Wynn Resorts (NASDAQ:WYNN) is among the travel and leisure stocks that remain favored targets of short sellers looking to identify names vulnerable to coronavirus volatility. But the gaming equity could put the hurt on bearish traders.

Wynn Stock Targeted By Short Sellers
Short sellers continue targeting Wynn stock, but they’re playing with fire. (Image: Reuters)

Recent data indicate Wynn joins Carnival Corp. (NYSE:CCL), Royal Caribbean Cruises Ltd. (NYSE:RCL), and Marriott International Inc. (NYSE:MAR) among shorts’ preferred COVID-19 bets. In the wake of the COVID-19 pandemic that’s bludgeoning travel and leisure equities, casino and cruise line operators are among bearish traders’ favored destinations.

With first-quarter earnings season in full swing and economic data deteriorating rapidly, short positions in virus-sensitive consumer cyclical stocks could be rewarded.

When we see a strong move in one direction, where we think the fundamentals and the news can turn ugly, especially during an earnings cycle, we think that’s an opportunity where we could see a 5,10% selloff again,” said Jerry Braakman, chief investment officer at First American Trust, in an interview with the Wall Street Journal.

Short sellers borrow shares on margin and look to buy the stock back at a later time at a lower price. The risk in this strategy is substantial, because there’s no limit to how high an equity can go.

Wynn Shorts Looking Dangerous

Late February and essentially all of March were rewarding times to short casino equities, including Wynn. But it’s getting harder for some of those traders to hold onto those bearish tickets.

Over the past month, shares of the Encore operator are higher by 82.38 percent, and the stock is up 116 percent from its 52-week low. For traders betting against Wynn, there is some good news: the stock isn’t viewed as one of the most vulnerable to a short squeeze – the scenario where bearish traders are forced to cover their positions, likely at losses.

“The stocks most susceptible to short squeezes are those with high stock borrow costs and large mark-to-market losses,” said S3 Partners Managing Director Ihor Dusaniwsky in a note out last week. “These are short sellers that are incurring losses while paying a steep premium to stay in those equities.”

No gaming names, including Wynn, are on the list of stocks where traders are incurring higher borrow fees and large mark-to-market losses…yet.

Something Else to Consider

Shares of Wynn are lower by about one percent at this writing. That’s a day after CEO Matt Maddox revealed a comprehensive coronavirus plan aimed at persuading Nevada Gov. Steve Sisolak to reopen Nevada’s economy, including parts of the Las Vegas Strip, next month.

Maddox is the first gaming chief executive to formalize ideas for how gaming venues can reopen while keeping guests and staffers safe. His leadership on the issue – if it moves Sisolak and other governors to get on board – could provide a spark for Wynn stock.

S3’s Dusaniwsky told the Journal that short sellers added nearly $800 million to wagers against Carnival, Royal Caribbean, Marriott, and Wynn over the past month.

In addition to the Wynn and Encore in Las Vegas, the operator owns Encore Boston Harbor. The Maddox proposal overtly mentions Sisolak, but doesn’t reference Massachusetts or Bay State politicians.