DraftKings (DKNG) Might Be a UFO!
I’m back from a weeklong break to reclaim my throne! Today I will be discussing DraftKings, but before I get to that…
What’s the Word on the Street?
As of me writing this, the market is mostly flat, though the Dow is solidly down. Earnings season is almost over and investors are waiting for tomorrow’s big CPI report (Consumer Price Index). CPI is used to measure inflation, though it’s important to note it isn’t the Fed’s preferred inflation gauge (that would be PCE), but it is still important for the market. Especially now when there’s uncertainty about the direction of the economy (Is the job market cracking? Is inflation going to stay elevated? How will tariffs affect everything?). We’ll see!
DraftKings (DKNG)
What Is It?
DraftKings, Inc. is a digital sports entertainment and gaming company, which engages in the provision of online sports betting, online casino, daily fantasy sports product offerings, DraftKings Marketplace, retail sportsbook, media, and other consumer product offerings. The company was founded by Jason D. Robins, Matthew Kalish, and Paul Liberman on December 31, 2011 and is headquartered in Boston, MA. The listed name for DKNG is DraftKings Inc. Class A Common Stock.
Why Is It a Possible UFO?
Primarily its current share price relative to its fair value and what other option traders expect are the reasons DKNG could be a UFO.
What About Recent News?
DraftKings released earnings last week and managed to beat on both revenue and earnings estimates. It also maintained full-year guidance. Most analyst price targets were raised, and some insider shares were sold. But most interestingly, DKNG is considering moving into prediction markets, which are becoming more popular.
What’s the Current Price?
DKNG has had a great run so far this year, but most of those gains have been in the past 3 months. And despite a good earnings report, DKNG is down about ~4.5% on the week and ~1% on the day.
What’s the Fair Value?
I’d first like to emphasize that fair value is subjective. Many analysts at many banks and institutions rate stocks differently and assign fair value in their own unique way. So, what I like to do is take all the recent fair values since the most recent earnings report and average them. In this case…
Since DKNG’s most recent earnings report on 08/06/2025, it has received 4 ratings and taking the average, the fair value might be somewhere around: $53.75.
3 ratings are a Buy and the Morningstar rating is unknown. The lowest price target is $53, while the highest is $54.
What Do Options Traders Think?
Calls are trading over equidistant Puts, which means traders think there is a chance to the upside. You can see because… forget about the green columns and focus on the red. Notice how on the right side for the $40 Put it says $0.99, it’s $1.25 for the equidistant Call at $45.
The premium (the credit you receive for executing the trade) is currently less for selling Puts, as opposed to selling Calls. Basically because of that, option traders expect the stock to go up, rather than down.
How About Volatility?
The IV rank (the purple line) for CMG (stock price in blue) is currently hovering around 8, which is pretty low (IV rank goes from 0-100). This makes short strategies (which are what I prefer) less attractive.
What's the Trade?
My preferred trade is a variation of the wheel without the rolling, AKA cash-secured puts. I typically like to target stocks that offer a dividend and are below fair value.
Why a dividend? If the trade results in assignment and I’m on the hook for X amount of shares, I can at least be satisfied knowing I picked a (hopefully under fair value) company that will pay me a small amount while I run the other side of the trade AKA covered calls.
DKNG does not offer a dividend, but that’s not a dealbreaker!
It’s a fairly low-risk strategy (all options trading is risky!), that has a higher probability of success, but requires a higher amount of collateral.
So if you saw the most recent image above, I already STO (sold to open) 2 contracts of the $40 Put for the September 19th expiration. I like to have a DTE (Days To Expiration) that is around ~45 days.
When the trade reaches 50% profit I will buy it back. I don’t like to be greedy and go for more profit, because I would rather not waste my time being in a trade for too long.
What About Alternative Trade Ideas?
- If the collateral requirement is too high, another idea is a put credit spread. You would sell a put at a strike below the current share price and then buy a put at a lower strike than the put you sold. By doing so, you will avoid the collateral requirement of a cash-secured put, but the credit received will be smaller. Also, if the trade goes sideways, you will not be assigned shares so no collecting dividends and running covered calls afterwards.
- Just invest! 1 share or even fractional shares are a way to get a foothold in a stock that you think might increase in value.
Wait…Where Are the Candlesticks? And All the Other Indicators?
I know many traders love their candlesticks and a ton of indicators. I prefer simplicity. Candlesticks aren’t necessary unless you’re the kind of trader that wants to try and pick the perfect moment to execute a trade, and even then it’s not a sure thing.
As for indicators, there are a ton. Some of them work sometimes. None are perfect. I don’t want to get bogged down with too many. You’ll drive yourself crazy looking at too many of them, so find a handful you like and stick with those.
Disclosures
- I currently have an open trade with DKNG (as mentioned in this post).
- No trade is a sure thing. There is always risk involved.
- This blog post is not meant to take the place of financial advice, but hopefully acts as a guide for learning or informational purposes.