Casino Stock Ripe for Downgrades

The shares of PENN Entertainment Inc (NASDAQ:PENN) are trading below $32.23, which coincides with the round $5 billion market cap, as well as their early November, pre-earnings close of $32.83. What's more, the equity is now below a trendline connecting higher lows since September, signaling a potential shift in the short-term trend higher since this period. Further, PENN's consolidation into its declining 12-month moving average could pressure the shares lower, similar to a period in August and September 2021 when this trendline capped a short-term rally before a significant dip. This long-term trendline is also situated in the $37 area that marked resistance from 2018 into the first half of 2020.

 

Outside of this weak technical setup, the company owns the popular Barstool SportsBook, which faces intense competition from FanDuel and DraftKings in the battle to draw bettors in states like Ohio, where legal mobile betting will go into effect on Jan.1.

Despite its 36% year-to-date deficit, analysts are still bullish on the stock. In fact, eight of 15 in coverage recommend a "buy," and an unwinding of this pessimism could add even more pressure. Also, since May, shorts have been building positions from a three-year low, and have little reason to cover judging by the price action over this period.

Now looks like the ideal time to speculate with options, as PENN's Schaeffer's Volatility Index (SVI) is at its lowest level since April 2022, which preceded a significant move lower in the shares into June. Our recommended put has a leverage ratio of -4.1, and will double on a 20% dip in the underlying security.