Sports game legislation continues to make its way into the states
Last week, Cleveland.com Ohio may be legalizing sports betting as early as this summer, according to reports. We last talked about the gambling landscape in October and since then Tennessee, Michigan and Virginia have launched their first ever online sportsbook. Meanwhile, Louisiana, Maryland, and South Dakota have all legalized sports betting. To understand the potential of stocks like DraftKings Inc (NASDAQ: DKNG) can be read, the writing is on the wall, and it is a matter of time and not whether it is in the other countries to be recognized. Given this legislative tailwind, has DraftKing’s potential as a growth game already burned in? The developments over the past week as well as a closer look at some technical and historical data are not speaking anytime soon.
While Ohio was preparing its bill, DraftKings took two under-the-radar steps. First, they signed a contract with Worldwide Wrestling Entertainment (WWE) and became an official partner that is subject to legal regulations. DraftKings’ hugely popular free pool product will be rolling into WrestleMania on April 10th and 11th. A day later, they acquired Vegas Sports Information Network, Inc. (VSiN), a cross-platform content company that provides betting news and analytics.
Is wrestling and a niche news network really moving the needle? Absolutely not. Keep in mind, however, that DraftKings also has broadcast partnerships with Walt Disney’s (DIS) ESPN and Dish Network (DISH). It is also an official partner of the NBA, MLB, NFL, NASCAR, UFC and PGA Tour. You nudge slowly but surely and position yourself in every sports landscape where money changes hands. And with regards to VSiN, DraftKings can now take advantage of the Vegas gambling infrastructure, a crucial element in any sports betting landscape.
A month ago this article may not have been written as DKNG hit record highs left and right and its 14-day Relative Strength Index (RSI) rose to 70 and was firmly in overbought territory. But since peaking at $ 74.38 on March 22, the stock has seen a discount of around 18%, providing an attractive entry point for speculators, with the RSI most recently at a much tastier value of 48. Additionally, this retreat triggered DKNG within a day’s standard deviation of the 80-day moving average after a long stretch above the trendline. For the purposes of this study, Rocky White, Senior Quantitative Analyst at Schaeffer defines that stock trading was 60% of the time above the moving average for the past two months and closed north of the trendline for eight of the last 10 sessions.
According to White, five similar signals have occurred in the past three years. DKNG was higher on all five of these signals a month later, averaging a one-month return of 13.6%. A similar move from the security’s current position would bring the stock back above the $ 70 mark. And there is even more pessimism that needs to be unwound in order to hit this record high. Short sellers have increased their positions by 37.5% over the last two reporting periods, accounting for a healthy 7% of DKNG’s total available free float.
Meanwhile, the mood among options traders has changed. The stock’s 10-day put / call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) rose to 0.37. While this shows that buying calls on an absolute basis has become increasingly popular, it is in the 88th annual percentile and shows unusual interest in long puts.
DraftKings options are also currently available at a premium as the Schaeffer Volatility Index (SVI) of 59% is in the lowest percentile of its annual range. This means that option players are currently pricing in relatively low volatility expectations. Additionally, the Schaeffer’s Volatility Scorecard (SVS) for the stock is 87 out of 100, which shows that DKNG has tended to exceed volatility expectations of option traders over the past year – a boon for option buyers.
One final note to tie things together. DraftKings’ market capitalization stood at $ 25 billion in mid-September 2020. After DKNG’s market capitalization rose to $ 28 billion in early March 2021, it has now fallen back to $ 25 billion. In the short term, this will be an area where the seasonality of stocks will take center stage in April
Bernie Schaeffer’s subscribers Chart of the week received this comment on Sunday April 4th.