It’s finally game time but so far, the outcome looks far from certain. I’m talking about Golden Nugget Online Gaming (NASDAQ:GNOG). But if investors are compelled to place a bet, off and on the price chart, the smart money wager is “da bulls and taking the spread” in GNOG stock. Let me explain.
In some ways — and given its direct listing on Dec. 30 — GNOG may have seemed a certain lay-up with cheer to follow for its investors. Happy New Year!! Right? But shares of the online sports betting outfit haven’t played out that way.
The stock is off about 25% from its all-time-high of $27.18 set two days in front of a reverse merger with a now-defunct Landcadia Holdings II.
So, what gives? Why is newly listed GNOG testing the mettle of its shareholders so early 2021? The tech-heavy Nasdaq Composite index is up narrowly on the year and just removed from its own all-time-highs. As much, investors would be hard-pressed to point fingers in that direction. And Tesla (NASDAQ:TSLA), today’s poster child for excessive valuations with its market cap of nearly $800 billion is up almost 20%.
It doesn’t seem fair. Shouldn’t GNOG be feeling even a tiny bit of that speculative fervor?
Is GNOG Stock Late to the Party?
It’s hard to know exactly what Wall Street is thinking at any given time. Could it be GNOG is simply late to the party after the incredible performances many SPAC stocks posted in 2020? Maybe.
As well, if misery loves company GNOG’s investors are free to commensurate with first-to-the-scene DraftKings (NASDAQ:DKNG) whose SPAC debuted last spring. DKNG stock hasn’t seen a new high in nearly four months. Or maybe investors simply need to be prepared to work on the long game rather than hope for favorable blitz-like action?
Bottom-line, the big picture for online sports betting should prove a huge, secular market opportunity. Even in a pandemic, we’ve collectively found creative ways to ensure collegiate and professional sports, at least those with plenty of advertising dollars at stake and worth wagering on, will be played.
State Tax Coffers Itching for Gaming Income
Moreover, states craving tax revenues would be crazy to resist this market’s legalization. Even bible-thumping areas of our country where sinners are admonished will probably open their doors to a bit of amoral behavior for a piece of the action.
That’s the good news for GNOG stock.
The hurdles which remain worthy challenges are that as of today only 12 states offer online betting. As well and when those obstacles are taken down one by one, GNOG will still need to obtain licensing from those open markets. And as with anything where governments are involved, even if it’s for their benefit, that action isn’t going to happen overnight.
GNOG Stock Daily Price Chart
Source: Charts by TradingView
Golden Nugget obviously still has its work cut out for it. Even more so if one realizes as of mid-December GNOG was only open for business in New Jersey. And let’s not forget the competition. Aside from DKNG, there’s MGM Resorts International (NYSE:MGM), Rush Street Interactive (NYSE:RSI) and other gaming giants such as Las Vegas Sands (NYSE:LVS) or Wynn Resorts (NASDAQ:WYNN) which could muscle in on the action in the years to come.
And on the price chart of GNOG stock, a classic read of that action between bears and bulls does look potentially ominous. So, game over for bulls? Not so fast.
The daily stock chart (above) of GNOG reveals a bearish head-and-shoulders topping pattern has developed with the backing of a weak-looking stochastics setup. A breach of the price formation’s neckline could only mean one thing, right? Wrong. There are no sure things when it comes to price patterns.
And given Golden Nugget’s 50% corrective reaction from its October low and testing of the stock’s former September high, the odds for a pattern failure and ability for GNOG to score new highs in 2021 looks promising.
There’s Profit in Pattern Fails
Pattern failures can be wildly profitable technical events to play. And should GNOG’s right shoulder be dismantled the stock could easily hit fresh all-time-highs as bears throw in the towel and momentum-seekers pile back into shares. Toss in GNOG’s merger value of just over 6x next year’s sales, market cap of less than $1.5 billion and $80 million in cash, and the chance for this type outcome grows in our estimation.
To be 100% clear, there are no guarantees our upbeat forecast for Golden Nugget shares will pan out. But with caveats in place and for bulls still wanting to bet on GNOG stock, I’d forgo the Hail Mary play and wager smartly on “the spread” market with a well-positioned May $22.50 / $30 Bull Call Spread.
On the date of publication, Chris Tyler holds, directly or indirectly, positions in DraftKings (DKNG) and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.