Why Call Traders Should Bet on DraftKings Stock

DraftKings stock could benefit from a short squeeze

Aug 18, 2021 at 12:06 PM
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Sports betting staple DraftKings Inc. (NASDAQ:DKNG) just broke out of a flag pattern late last week, and has found support at the round +10% year-to-date and +50% year-over-year breakeven levels. Plus, with the company moving into the sale of vastly popular non-fungible tokens (NFTs) and newly legalized sports gambling in Canada, DKNG is the stock to watch right now in that sector.
A further unwinding of short interest could send the equity higher. These bearish bets fell 4.7% during the last reporting period, but still make up 4.7% of the stock’s available float. There’s room for upgrades, too. Of the 20 in coverage, six consider DKNG a tepid "hold."
Some of this pessimism is being echoed in the options pits, where DKNG sports a 50-day put/call volume ratio that stands in the 78th percentile of its 12-month range at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This implies puts are being picked up at a much quicker clip than usual. What's more, with the upcoming expiration of peak call open interest at the 55-strike in the August series, this potential level of resistance will be eliminated and leaves more potential upside for the shares.  
Now looks like a perfect time to get in on DKNG’s next move higher with calls. The security's Schaeffer's Volatility Index (SVI) of 41% stands lower than all other readings from the past year, meaning options traders are pricing in extremely low volatility expectations at the moment. Plus, its Schaeffer's Volatility Scorecard (SVS) ranks at 73 out of a possible 100, implying that the stock tends to outperform these expectations – a good thing for buyers.
Subscribers to Schaeffer's Weekend Trader options recommendation service received this DKNG commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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