DraftKings Lures Bullish Options Traders Ahead of First Earnings Report
Posted on: May 13, 2020, 11:23h.
Last updated on: May 13, 2020, 11:50h.
DraftKings (NASDAQ:DKNG) delivers its first earnings report as a public company on Friday, May 15, and options traders are piling into the stock ahead of that event, betting on an epic move by the daily fantasy sports (DFS) kingpin.
Earlier today, the stock flirted with $28 before peeling back, as gaming equities followed the broader market lower. At this writing, DraftKings stock trades at $25.65, or 46.5 percent above its April 24 initial public offering (IPO) price.
Still, not yet a month old, DraftKings stock is already establishing a reputation for large intraday moves – mostly of the bullish variety. The options market is reflecting as much, pricing in a 20.4 percent move for the name following Friday’s earnings, according to Schaeffer’s Investment Research.
Options bulls are jumping on the digital gaming stock today, with call volume running in the 99th percentile of its annual range,” according to the research firm. “So far (today), 39,000 calls have exchanged hands, triple the amount typically seen at this point, and almost eight times the number of puts traded.”
That’s decidedly bullish, because calls are the options buy when they expect the underlying security will go up, while puts are purchased to profit from price depreciation.
Although live sports haven’t been available since the DraftKings IPO (NASCAR resumes Sunday), Wall Street is fawning over the stock, highlighting opportunities in the iGaming market following the coronavirus, as well as more upside for sports betting when competitions return.
Data confirms options traders concur, with some making ambitious, if not risky, bets on the stock.
For example, one of the most active DraftKings contracts today is the May $30 calls, meaning the stock needs to hit $30 before expiration on May 20 for those options to become profitable. Said another way, DraftKings stock needs to gain about 20 percent from current levels over just seven trading sessions to bring those contracts into the money.
Traders are also displaying some affinity for the July $30 calls, potentially a more prudent bet, because those contracts don’t expire until the 24th of that month.
Par For The Course
Today is merely the fourteenth day of public life for DraftKings, and its time in the options market is even shorter. But it’s already established a highly bullish reputation.
“This bullish behavior appears to be the norm for options players, with 70,812 calls picked up during the last 10 days, compared to 10,496 puts,” according to Schaeffer’s.
That’s good for a call/put ratio of 6.74, which is overwhelmingly bullish. Analysts agree, as each one covering DraftKings has the equivalent of a “buy” rating on the stock, and the average price forecast of $24 looks primed for upward revisions if investors like what they hear on the Friday earnings call.
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