DraftKings’ Stock Tumble Lures Bullish Investors

In the dynamic and ever-shifting tides of Wall Street, DraftKings (NASDAQ: DKNG) has recently been making waves that have captured the attention of keen market watchers. Over the past week, the stock has seen a tumble of 9.56%, a descent from its recent apex that has some investors rubbing their hands in anticipation. These market magicians are looking at this pullback as nothing short of an auspicious opportunity to weave their capital into the unfolding story of DraftKings.

Nestled within the heart of Boston, the DraftKings headquarters might appear a fortress of calm amidst the stock’s mild tempest. And yet, despite this ebb in its financial journey, the company’s shares have surged by an impressive 14.35% since the year’s dawn. Cast your mind back to the past year’s performance, and you’d find the stock nearly tripling in value, a testament to its formidable growth narrative.

Even as the share price recedes 11.64% below its 52-week zenith—breaching what the market terms a correction—fundamental technical indicators such as the major moving averages stand unviolated, a beacon signaling that DraftKings is far from entering a bear market territory. These averages are the cartographers’ tools, charting a stock’s support and resistance realms, essential in navigating the market’s intricate topography.

The undercurrents of the market have seen a sell-off of DraftKings shares. Market oracles hypothesize that the cause may be a brew of concerns over the company’s robust valuation mingled with the complexities surrounding its $750 million cash/stock transaction to acquire the online lottery maestro, Jackpocket. Yet, amidst these vicissitudes, wizards of Wall Street such as JMP Securities’ analyst Jordan Bender perceives in DraftKings the rare silhouette of storied growth stocks, deserving of an elevated multiple.

One might dare say that the stage is set for DraftKings’ ascent; valuation never plays the sole protagonist in the decision to buy or sell. The contemporary market has a penchant for growth narratives, suggesting a favorable climate for DraftKings’ stock to flourish. Additionally, whispers from the options market suggest the advent of positive developments on the horizon for this gaming stock.

In the lead-up to the company’s fourth-quarter earnings report, the oracles at Schaeffer’s Investment Research observed a keen twist in the options tapestry. The largest open interest positions on DKNG were puts, indicating bets on a decline. Yet, following the expiration of a tranche of overhead calls, the absence of this options-related resistance could bode well for the stock’s future. Moreover, with April’s implied volatility subsiding significantly, the cost of playing the options game becomes more inviting.

The labyrinth of options trading often finds DraftKings at its center, as traders look to capitalize on its growth-driven, sometimes staggering, movements. These market currents offer glimpses into what the future may hold for the stock’s performance in the short term.

However, the narrative does not end here. A potential deus ex machina lies in the arena of short selling. The bearish gladiators who have bet against DraftKings’ fortunes may find themselves in a precarious stance. As Schaeffer’s Investment Research elucidates, nearly 5% of the stock’s available float is entangled in short positions.

Poised on a knife-edge, these positions suggest that a sharp turnaround in DraftKings’ stock price could trigger a frenzy of short-covering. Such buying pressure, as the shorts hasten to settle their bearish wagers, could catalyze an impressive rally—a metamorphosis that could transmute the current stock narrative into one of triumph against the odds.