In the dynamic landscape of the market, DraftKings has seen its fair share of investor anticipation with its stock price reflecting a notable fluctuation. Over the past week, the company’s shares have witnessed a downturn, decreasing by 9.56%, a movement that keen market watchers have been expecting. Despite this dip, the online sportsbook operator’s performance remains robust, boasting a commendable year-to-date increase of 14.35%. This uptick comes on the heels of last year’s impressive near tripling of its stock value.
The current backslide has seen DraftKings’ shares fall 11.64% beneath their 52-week zenith, a slump that crosses the threshold into what market analysts might classify as a correction. Nevertheless, a closer examination of key technical indicators, such as the major moving averages, reveals that no significant thresholds have been breached, and the stock is far from entering a bear market. These averages are pivotal in disclosing underlying support and resistance levels that help investors navigate their trading decisions.
The recent sell-off of DraftKings shares could be attributed to an air of hesitancy surrounding the appreciation in the stock’s value and the intricacies embedded within the recent acquisition of Jackpocket, an online lottery provider. This deal was inked for $750 million in a mix of cash and stock considerations.
Despite these factors, there’s a silver lining according to Jordan Bender, a top analyst from JMP Securities. In an advisory to clients, Bender highlights DraftKings’ entitlement to a generous valuation, likening it to the trajectory of historically successful growth stocks.
The investment ethos often dissects valuation as merely one aspect of the decision-making process. In actuality, the prevailing market conditions seem to favor growth-oriented stocks, potentially setting the stage for further gains in DraftKings’ future. The options market, which is a reflection of investor sentiment and expectations, lends credence to this optimistic outlook.
Even more telling, leading up to the company’s quarterly earnings report, there was a noticeable predominance of put contracts on DraftKings within the options market. This contrasts with a downturn in overhead call contract volumes, particularly those at higher strike prices that have now expired—lifting some of the resistive weight off the stock.
Moreover, the implied volatility, a metric used to gauge market sentiment and the likely magnitude of stock price movements, has seen a descent to levels in line with historical volatility. Correspondingly, this decrease in volatility spells reduced premiums for options, a favorable development for options traders who often target DraftKings due to its potential for significant, event-driven price actions.
There is an additional element that might influence DraftKings’ stock trajectory: short covering. Currently, significant volumes of shares remain shorted, a position that bears considerable risk if the stock were to start climbing. Any such upward movement could compel short sellers to buy back into the stock to cover their positions, thereby instigating a rally.
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