July 28th, 2023
Speculative Stock “Bet” Pays Off
Income Masters members just closed out a winner on a new name: digital sports entertainment and gambling company DraftKings (DKNG).
The online gambling space is competitive, but DKNG stock tends to perform well in the July-to-August timeframe in anticipation of the upcoming NFL season, which drives a lot of interest in sports betting companies.
While DraftKings is growing revenue at an impressive pace, it is not yet profitable. Its next earnings report is scheduled for Aug. 3, which could move the stock sharply in either direction.
Last week, we saw an opportunity to enter a short-term trade ahead of the upcoming announcement.
In the Income Masters July 18 Live Trading Session, with the stock trading at $31.31, we recommended members sell to open the DKNG 28 Jul 29 Put for around $0.25, or $25 per contract.
At the time, we said we would look to exit the trade at around $0.05, or about 80% of the max profit.
Our target price was hit one week later, prompting us to issue a closeout alert, and we booked a profit of $0.20, or $20 per contract.
The stock continued higher this week, and the premium has come down even more. But we stuck to our goal rather than risking a reversal for a few more cents.
While $20 per contract may not sound like a lot of cash, with the relatively low capital requirement of just $2,900, it would have been easy for traders to scale up by selling more contracts. Furthermore, it represents a 0.7% return on our capital in just one week.
Depending on how the market reacts to DraftKings’ earnings next week, we may look to trade the stock a few more times in the run-up to football season.
Managing Editor, Traders ReserveT