With the commencement of college football this weekend and the NFL regular season a mere two weeks from now, derivatives strategists at Susquehanna are highlighting buying call options in online sports betting play DraftKings (NASDAQ:DKNG).
"With college football kicking off this weekend and the NFL regular season just two weeks away (not that we're counting...), we look to Sep22 calls in Positive-rated DKNG (Stauff) to take advantage of short-term implied volatility that is now trading near two-year lows and given where we are in the key U.S. sports calendar," they commented. "While acknowledging how small our sample size is, we look at historical performance for DKNG through the month of September over the last three years (since its listing) and note that it has been a relative outperformer in the first ~2-3 weeks of the month alongside that kickoff to football season."
After peaking in late July, DraftKings shares have fallen by about 14%, compared to the Russell 1000's 3.3% decline during the same period. This drop is attributed to uncertainty surrounding the PENN Entertainment Inc/Disney ESPN partnership, raising worries about potential increased spending in 4Q23 due to the anticipated launch of ESPN-Bet around November 15th, the strategists note.
Analysts who cover the stock for the firm have a Positive rating and a $40 price target on the stock.
In terms of potential near-term catalysts, earlier this week they provided their outlook for the online gaming operators heading into the start of the key U.S. sports calendar.
"With the new U.S. sports calendar approaching its start on 8/26, we provide our outlook for this season (9/1/23-4/1/24) and what we think are likely to be the most important investment themes that will affect the stocks," they commented at that time.
They go on to write: "For OSB, we expect yoy GGR growth of 60% this U.S. sports season vs. last season, and our market share assumptions remain steady with 2Q23 levels (July trends indicate further gains for DKNG, but September is by far the most important month of 3Q23; thus, our more conservative assumptions). We do not expect 'inroads' from new entrants Fanatics/PointsBet and HardRock or from Bet365 expansions but think PENN's ESPN-Bet launch in mid-November could generate share changes, although it is more likely to crowd out existing sub-scale operators (now 24% of 2Q23 share). From the onset of the season, the iCasino market will see more competitive disruptions after iCasino-direct launches from CZR's iCasino-direct app (on 8/16), DKNG's Golden Nugget (on 8/21), and what we think will be FanDuel's eventual iCasino-direct launch of PokerStars (~60% of iCasino market is the 'iCasino'-direct customer where BetMGM has ~45%+ share)."
With the NCAA football season commencing this Saturday and the NFL season beginning in two weeks (first game on 9/7), the strategists find the current dip in short-term implied volatility an opportune moment. By utilizing calls, they aim to capitalize on potential upside movement in the coming weeks. Presently at around 49%, the 30-Day implied volatility stands in the 8th percentile compared to the past two years.