DKNG August 29th Options Begin Trading

Financial analysis highlights two options strategies for DraftKings (DKNG), currently trading at $42.59. Selling a $35.00 strike put for $0.22 offers an effective entry at $34.78, with an 86% probability of expiring worthless for a 4.59% annualized return. Concurrently, a covered call strategy involving the $51.00 strike for $0.39 premium provides a potential 20.66% total return if shares are called away, or a 6.68% annualized yield boost with an 81% chance of the option expiring worthless. The analysis notes implied volatilities of 63% for the put and 48% for the call, aligning with the 48% trailing actual volatility.

Analysis

The options market for DraftKings (DKNG), currently trading at $42.59, presents distinct strategies for bullish investors and current shareholders. For those seeking to acquire the stock, selling the $35.00 strike put contract for a $0.22 premium establishes an effective entry point at $34.78, representing an 18% discount to the current share price. This strategy carries an 86% statistical probability of the option expiring worthless, which would yield a 4.59% annualized return on the cash commitment. Conversely, for existing shareholders, a covered call strategy at the $51.00 strike yields a $0.39 premium. This could result in a 20.66% total return if the stock is called away, or a 6.68% annualized yield boost if the option expires worthless, an event with an 81% probability. A notable data point is the divergence in implied volatility: the put contract's is 63%, while the call's is 48%, a figure that aligns exactly with the stock's trailing twelve-month actual volatility. This suggests the market is pricing in significantly more risk of a downside move than an upside move relative to historical price behavior.

Key Decisions for Investors

• Investors bullish on DKNG but seeking a lower entry point could consider selling the $35.00 strike put to either acquire shares at an effective 18% discount or generate a 4.59% annualized yield.
• Current shareholders aiming for income generation might find the $51.00 strike covered call attractive, as it offers a 6.68% annualized yield enhancement with an 81% probability of retaining the shares, while capping total return at 20.66% if the stock appreciates past the strike.
• Traders should note the elevated implied volatility in the puts (63%) compared to both historical volatility and call IV (both 48%), indicating that the options market is pricing in a heightened risk of a price decline, a factor that must be weighed against the potential yield from selling puts.