Sports Betting Stock Eyes Superbowl Week

Superbowl Sunday is only a few sleeps away, and if you live in a state where sports betting has been legalized, you’ve probably been inundated ad nauseum by advertisements from the various platforms. The Wall Street Journal estimates that over 50 million Americans will bet on the Big Game, and with numbers like that, it’s time to assess the technical setup of DraftKings (DKNG) stock.

DKNG was last seen 5.4% lower to trade at $16.72, but like most growth stocks, has flourished in 2023 to the tune of a 46.7% gain. The shares’ 320-day moving average turned away the current rally, a trendline that hasn’t been toppled on a closing basis since October 2021. Longer term, the equity is down 28.6% year-over-year and traded as low as $9.77 on May 12.

Short interest is up 17.5% in the two most recent reporting periods, and the 36.25 million shares sold short accounts for a healthy 8.4% of DKNG’s total available float.

Options traders are taking a different route. In the past 50 days 2.12 calls have been bought for every put on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Given the amount of short interest tied up in the stock, some of these calls could be shorts hedging against any unexpected upside – like the brief two-month rally we’re witnessing right now.

If DKNG were to get some sort of post-Super Bowl boost due to all the bettor traffic, it would come at a critical time for the company. DraftKings reports earnings after the market closes on Thursday, Feb. 16. The stock has a rather ugly history of post-earnings reactions, with a 27.8% bear gap last November and a 21.6% drawdown in February 2022. Overall, DKNG averages a post-earnings move of 10.7% after the last eight reports, but the options market is pricing in a larger-than-usual post-earnings move of 15.7% for next Friday’s trading.

Ahead of the known event, it’s not surprising that DraftKing’s short-term options are fetching a pretty penny. The stock’s Schaeffer’s Volatility Index (SVI) of 105% stood in the 66th percentile of its annual range, as of last night’s close. It’s also worth pointing out that the equity ranks low on the Schaeffer’s Volatility Scorecard (SVS), with a score of just 21 out of 100. In other words, DKNG has consistently realized lower volatility than its options have priced in, which means speculators may want to pursue a premium-selling strategy or wait to buy premium after earnings.