New ETFs Offer Leveraged Bets on DraftKings Stock

• New ETFs aims to deliver 200% of the daily returns of DraftKings stock
• These ETFs could prove popular with risk-tolerant retail traders

For traders seeking amplified near-term gains on heavily traded DraftKings (NASDAQ: DKNG) stock, there’s a pair of new exchange-traded funds (ETFs) aiming to accomplish that objective.

The Defiance Daily Target 2X Long DKNG ETF (NASDAQ: DKNX) and the T-REX 2X Long DKNG Daily Target ETF (CBOE: DKUP) came to market two weeks ago as the first single stock ETFs tied to shares of the online sports betting giant. Both new ETFs aim to deliver 200% the daily returns of DraftKings stock. Derivatives, including swaps and options, are used to accomplish that objective.

DraftKings Inc. is a leading digital sports entertainment and gaming company, offering sports betting, daily fantasy sports, and online gaming across regulated markets in the U.S. and beyond,” noted Defiance in explaining the rationale behind the DKNX launch. “As legalized sports betting expands and consumer engagement accelerates, DraftKings continues to innovate with technology-driven platforms, data analytics, and strategic partnerships.”

REX Shares launched DKUP in conjunction with the T-REX 2X Long BULL Daily Target ETF (CBOE: BULU), a double-leveraged play on online brokerage firm Webull (NASDAQ: BULL).

DraftKings Could Be Interesting Geared ETF Play

There are multiple reasons why DKNX and DKUP could become hits with aggressive, risk-tolerant retail traders, not the least of which is DraftKings’ status as a stock that’s widely known and held among market participants who may be inclined to use geared ETFs.

“The current IV (34.7) in DKNG is -5.3% below its 20 day HV (36.7) suggesting that options markets are predicting future volatility to trade below the most recent 20 day realized volatility,” according to Market Chameleon. “Traders frequently use the difference between implied volatility and historical volatility to measure divergence from the mean. Using the 252 HV as the long term benchmark, the implied volatility (34.7) is currently -27.6% below the 252 day HV (48.0) mean.”

While the gaming stock’s near-term volatility metrics may be trending, that’s not an invitation for traders to turn DKUP or DKNX into long-term investments. Broadly speaking, leveraged ETFs do fine jobs of delivering on their stated objectives over a few days or a week, but the longer those funds are held, the more likely they are to deliver returns that are nothing close to what users bargained for.

Some DraftKings Clients, Investors Could Love New ETFs

Some ETF issuers, including Defiance and REX Shares, have leaned into single-stock ETFs on highly popular equities, luring ambitious, usually young traders along the way.

Defiance’s lineup includes single-stock ETFs on Palantir (NASDAQ: PLTR), Robinhood Markets (NASDAQ: HOOD), and Strategy (NASDAQ: MSTR) — all stocks beloved by younger market participants, many of whom are also DraftKings clients.