The seasonal September swoon is just about over, marked by a dastardly China-triggered sell-off Monday, followed by a huge rebound in equities to close out the trading week.
This tells us the fourth-quarter rally is kicking off in fine fashion, which also gives us the opportunity to potentially cash in on some flash options action over the next few weeks.
These Stocks Are Ready to Rally
If you’re like me, you’re probably very much into fall sports. Truth be told, there’s no better time for sports or sports betting companies than October. Here in the States, we have the MLB playoffs in full swing AND the meat of the NFL season, where most teams (and fans) still have high hopes. Abroad, the major soccer leagues, from La Liga to the English Premier League, are also in full swing.
That means one thing.
The betting dollars will be flowing at the highest volumes of the year over the next couple months, both here and in Europe.
According to a CNBC report, “An estimated 45.2 million Americans plan to wager on the 2021 NFL season in some form, up 36% year over year, according to the American Gaming Association.”
This bodes well for a few select stocks that have recently been underwater, namely two of my previous recommendations: DraftKings Inc. (NASDAQ: DKNG) and Penn National Gaming Inc. (NASDAQ: PENN).
These two stocks took a big hit as the United States reopened this year. From March to July, shares shed roughly 60% of their value:
That said, there are numerous reasons I believe these two stocks are about to rally, especially DraftKings Inc.
Here’s why.
As I alluded to in my opening statements, the time for high-volume sports betting is right now. I expect this surge of new and returning gamblers will manifest in a massive revenue surge for these two companies come their next earnings reports.
As it stands today, 26 states in the U.S. allow legal sports betting, and that number is growing quickly. This is expected to generate over $1.5 billion in revenue for DraftKings alone, as recently reported by the company in a financial release with the Securities and Exchange Commission (SEC).
Moreover, institutional investors have recently taken a shine to these online gambling stocks.
According to a Bloomberg report from yesterday, innovation investor Cathie Wood has been buying up shares of DKNG: “Wood’s Ark Investment Management bought roughly 770,000 shares of Boston-based DraftKings on Wednesday across two exchange-traded funds.”
The report goes on to note that retail investors have “snatched up $44 million worth of shares on Tuesday and added another $11 million Wednesday.”
Additionally, with these bullish factors in place, it wouldn’t surprise me if DKNG shares rallied and pushed back toward the stock’s early September high of around $62 over the next two months. From a technical standpoint, shares are consolidating off recent lows, and this typically indicates a short-term upswing in share value — a mini-breakout.
That’s why DKNG options are sparking my interest this week.
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Here’s the Trade
Today’s call option to consider is the October 2021 $57 call(s) that expires on October 22, 2021.
Here’s what to do.
Buy one or more DKNG October 2021 $57 call(s) with the expiration date of October 22, 2021. The price of this contract will be around $1.61 per share, or $161 total.
Once you’re in the trade, our goal is to sell the contract as we near the expiration date, ideally at a price of around $3–$4 for roughly a 100% gain. Keep in mind, however, this is an active management strategy, and you will want to check the prices daily until you reach a gain where you’re comfortable with how much time remains until expiration.
Conversely, if the stock starts to slide away from our strike price of $57, we will actively manage this risk and sell before the option expires, minimizing our loss.
To recap, here’s today’s option trade:
Buy one or more DKNG October 2021 $57 call(s) with the expiration date of October 22, 2021.
- Strike Price = $57
- Expiration Date = October 22, 2021
- Premium = $161
- Max Loss = $161
Since this option expires in about four weeks from today, be sure to check back in on Fridays for new updates on this trade and for our next trade in my continuing Options Action Friday series.
To your wealth,
Sean McCloskey
Editor, Energy and Capital
@TheRL_McCloskey on TwitterAfter spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.
