Online betting site DraftKings (DKNG) is down 20% over the past year, as the company has failed to translate its growing earnings into a profit. One trader sees shares trending higher in the months ahead.
That’s based on the August $52.50 calls. With 144 days until expiration, 41,144 contracts traded compared to a prior open interest of 140, for a massive 294-fold rise in volume on the trade. The buyer of the calls paid $1.15 to make the bullish bet.
DraftKings shares recently traded for about $39, so the stock would need to rise by $13.50, or about 34.6%, for the option to move in-the-money. That would also put shares back near their 52-week highs of $53.61, set back in February.
Operationally, DraftKings is still an early stage company.
While revenues rose 13% in the past year, overall the company reported a loss. However, with revenues approaching $5 billion, a shift to profitability could occur in the coming quarters.
Action to take: Shares were hit hard in the recent pullback as a momentum stock. However, that could now work in favor of shares in the months ahead. Momentum investors may like shares here.
For traders, the August $52.50 calls are well positioned for a recovery in the months ahead. Traders will want to take quick profits if the trade manages to move in-the-money, given the high volatility in shares.
Less aggressive traders can likely target mid-double-digit returns in the coming weeks on a rebound.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
