Daily fantasy sports giant Draftkings Inc (NASDAQ:DKNG) has not had a great few days and that has been reflected in its stock price, which has declined by as much as 30% over the course of the past 10 trading sessions. That being said, it should be noted that back on October 2, the stock had closed at $63.78 a share, which was an all-time high for DraftKings. Since then, the stock declined at a fairly alarming rate.
A Buying Opportunity?
It goes without saying that when a stock is overbought then there is a possibility of such drops and that is one of the factors behind the drop.
In addition to that, DraftKings had also announced a secondary offering of shares on October 5 and such announcements often lead to a drop in share prices.
That being said, it is also important to recognize that the decline in the stock was quicker than normal and hence, it is believed that it could well be a buying opportunity for investors.
A secondary offering leads to the dilution of the shares and hence, the drop in share price is understandable. However, it is also necessary to note that DraftKings shares are now trading at a $7 discount when compared to the secondary offering shares.
Additionally, the stock is also trading at a lower level than the average target price of $57.35 that has been set by analysts. Some analysts who follow the company believe that when the selling pressure eases up, there is a possibility of the stock recording gains.
The Possible Trade
One way of trading this opportunity is by selling November 6 puts worth $40 and buying November 6 puts worth $140. That will give a net credit of $120.
The company is going to release its earnings on November 13 and hence the November 6 puts is not going to affect the trade by way of earnings-related uncertainties.
The COVID 19 Factor
Another possible factor behind the drop in the DraftKings stock price is rooted in the rising COVID 19 cases and the possibility of disruption to college as well as professional sports.
Nick Saban, the Alabama coach tested positive recently, and the NFL team Atlanta Falcon closed its facility as well.
Considering the fact that DraftKings is entirely dependent on live football, it is no wonder that investors are now getting a bit jittery. Investors could do well to keep an eye on these factors when considering an investment in the stock.
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