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How to play a comeback in casino stocks: Trader

Shares of Wynn are breaking out: Trader
Shares of Wynn are breaking out: Trader
Markets moving in lockstep
Markets moving in lockstep
The ETF that’s doubled this year
The ETF that’s doubled this year

It's been a winning year for shares of Wynn Resorts.

Casino stocks have suffered severely in the past year, as the Chinese government's crackdown on corruption has driven revenue in Macau to multiyear lows. But some investors may be anticipating a turnaround for Wynn's stock, after the company reported better-than-expected fourth-quarter earnings, and Macau saw its best monthly revenue growth in 20 months.

"This stock has come back from the brink of a pretty serious collapse," Todd Gordon of said Wednesday on CNBC's "Trading Nation." From looking at the chart of Wynn's stock, Gordon said it may be starting a new uptrend.

Wynn shares have risen 37 percent in the past month. Casino competitor Las Vegas Sands has also risen 20 percent in one month.

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Gordon said shares of the casino giant have seen a "double bottom," as well as a break above resistance — signaling to him that the stock will add to its gains. However, he recommended waiting for a pullback to previous resistance at $78 before making a bullish bet on the casino stock.

"If the stock were to break back in the [previous] range, I would say the premise of the trade is incorrect and we want to step to the sidelines," Gordon said.

Wynn's stock rose slightly on Wednesday to $85. For his trade, Gordon is targeting a move back up to $100 per share, by buying the April 85-strike call and selling the April 90-strike call for $1.50 per share (with 100 shares per contract). The strategy is known as a bullish call spread, and is profitable if Wynn shares rise above $86.50 by April expiration. If shares rise above $90, Gordon will make a capped profit of $3.50 per share.


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