Here’s the skinny on DraftKings ($DKNG) (May 27, 2020)
DKNG
I am going back to the well; apparently a lot of people are really interested in how we are doing on DraftKings ( NASDAQ: DKNG ) so I will just keep going on this as long as it’s still working for you.
At one point the stock was down a bit, never really a lot but it was down a little bit. As volatile as this thing is, 3-3.5 percent, maybe 4 percent, and that is kind of a big pullback. But if you look at it in trend, in just the context of the entire trend, the stock is always doing pretty well. Any tag of the 8-day moving average, that’s exponential and it’s the green line, that’s really when you have wanted to buy or at least watch it pretty darn close to make sure that it is staying in the channel, so far it is.
I bought back my short 35.00 calls today for a slight loss but that’s okay because the short puts that I had were profitable by just about the same amount that I lost on my short call position so they balanced out. I took off the upside hedge; I still own the stock and I am still short the puts. This is just kind of the way I think you want to trade.
The toughest thing about a stock like this is it does tend to be pretty volatile. And even though the stock is in a monster uptrend here, this is $35.00 here on this chart, which just goes back to last month, the stock was $13.00, less than $13.00. So this is a pretty big uptrend and it looks like it is really easy to hold. But when the stock is up here one day and then the next day it is down almost 20 percent, this isn’t easy to hold through, it’s just not. I would like to BS you and say that it is but it’s not.
Holding a stock through a 20 percent pullback is just not something that you generally want to do. It is a stock that you have got to kind of trade around, and I will say it again, the most important thing is to be having hedges and be shorting calls, shorting puts, it’s called a covered strangle strategy. And you have to understand that the idea is that you are going to lose money on your hedges.
So like I said, I lost money on the calls that I had sold, I sold them at a lower level, the stock is up so I lost a little bit of money, not a lot, not a lot, but I lost a little bit of money. A $35.00 strike price so if the stock starts running through the strike price in your short that’s when your losses will kind of mount at the same time as your profits on your short puts start decelerating; because the stock is getting further away.
So you always want to look at your stock as your core position, that’s what you are doing, you are trading stock. The calls and puts that you are selling, you are doing that literally to augment your stock position and at the same time hedge it. If you are short a call and a put you are going to make money on one of them, that’s a guarantee. I just say stay long. Any pullbacks to the 8-day moving average, you should be buying those. They don’t report earnings for quite a while so let’s just keep this puppy going.
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