It’s been badly sacked. But when it comes to DraftKings (NASDAQ:DKNG) and the little time remaining in the fourth quarter, is DKNG stock ready for the offense to take control of the game?
We will find out. Right now, though, let’s look at some drivers off and on the price chart and a risk-adjusted determination aligned with those findings to offer more efficient profit yardage and avoid a busted fantasy trade.
In recent months, DraftKings has lost that certain something with bullish investors. Namely, the optimistic momentum driving shares to high praise and investing glory in 2020 has been sent packing in a big way.
Overall, shares are off roughly 61% from DKNG stock’s all-time high back in March. And since early September when it appeared the bulls were finally coming off the bench after a five-plus month bearish cycle, DraftKings shares got sacked again. And they’re still losing yardage big-time.
Over the past three months, and in this year’s final quarter, DraftKings has been clobbered 54% to challenge its weakest stock prices since May 2020 when DKNG stock was busy staging an epic, market-leading rally.
A Broad Look At DKNG Stock
So, what gives in the market’s premier online fantasy sports betting outfit? A couple things actually.
Broadly speaking and enough in its own right, DraftKings investors have stolen a page out of the bearish playbook which hit growth stocks back in 2021’s first half of play.
For Shopify (NYSE:SHOP), Rivian Automotive (NASDAQ:RIVN), Square (NYSE:SQ) and many others, a second wave of inflation and novel coronavirus fears have and continue to hang over growth stocks over the past month or so.
More unique to DKNG stock than higher price multiple concerns in a less-friendly stock environment, some investors may be tired of waiting.
Thus, the real play on DraftKings isn’t the outfit’s hugely successful fantasy sports leagues. It’s all about future legalized sports betting across the United States and ultimately, legalization at the federal level. That’s where the company’s hyper growth lies.
Nonetheless, this is the sort of change that takes time. It is the government, right?
Yet, while that’s not exactly a secret, in a market obsessed with the instant gratification trade vis-à-vis meme stocks such as GameStop (NYSE:GME) this year; a growing lack of patience with positive business developments is certainly on the table regarding the current plight in DKNG stock.
Not helping matters, infamous short seller Jim Chanos recently announced his firm Kynikos Associates is betting against DraftKings.
Chanos sees DKNG stock as “drastically overvalued” with heavy spending on marketing to fuel the outfit’s successful growth and market share to date, as unsustainable.
But before you think you’ve got a hot inside tip to bet “the under” in DKNG stock, DraftKings CEO Jason Robins vehemently objected to the bear’s fear mongering math and financial assertions on CNBC.
Furthermore, for the record, Chanos has also had an ax to grind against Tesla (NASDAQ:TSLA) the past few years.
So, while bears are often regarded as the smart money, don’t forget it’s a two-way street. And in the case of DKNG stock, some bears are obviously much slower and in a much tougher position to make the kill.
DKNG Stock Weekly Price Chart
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Spend-now, profit-later? When the strategy works, it can become the thing of legend.
Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) as well as Chanos’ misguided Tesla bet are three legendary growth stock stories not unlike DKNG stock which build a very agreeable bullish argument for that sort of plan of attack.
Right now, the longer-term DraftKings price chart is at a point where value and growth are colliding.
On the provided monthly view of DKNG stock, shares are near a full-blown testing position of the stock’s lifetime 76% Fibonacci level.
Furthermore, with the deep retracement accompanied by Bollinger Band support, as well as an oversold stochastics indicator, buying DKNG stock has fairly limited downside risk compared to much larger upside potential.
Bullish DraftKings’ investors could wait for a stochastics crossover to have a bit more trade confirmation in place. However, in this situation, I don’t see it as necessary.
Collectively, in reviewing DraftKings’ options board and given its business prospects, an intermediate-term July $35 call looks well-priced in lieu of owning DraftKings stock given the advantaged field position and what we might expect in the first half of next year’s game.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
