DraftKings Inc (DKNG) short selling has been active since its acquisition in April as short sellers saw the stock as overbought during the Covid-19 lockdown when there was minimal live sports action to wager on. DKNG short interest is $680 million; 19.56 million shares shorted; 7.79% of its float. DKNG is the third largest short in the Casino and Gaming Sector.
DKNG short selling activity traded in relative lockstep with its price appreciation as shorts were selling into the stock’s rally. There were 19.5 million shares of DKNG stock shorted as its stock price appreciated by +225%. Shorts were down -$134 million in mark-to-market losses in year-to-date losses prior to today’s -4% price drop. Shorts are up +$28 million in mark-to-market profits today, reducing year-to-date losses to -$107 million, down -46%.
There has been a short squeeze in DKNG in July, with 1.7 million shares, worth $60 million, covered over the last 30 days. This short covering accelerated somewhat over the last week with 750 thousand shares covered even though DKNG’s stock price declined -4% prior to today’s trading.
Much of this short covering was due to positive revenue implications due to the return of live professional sports in the U.S.. Major League Baseball starting their abbreviated season recently and both the National Basketball Association and National Hockey league are starting play this week. In just a few months, the National Football League would round out the return of the big four sports leagues.
Today’s price move may be due to the fact that Major League Baseball had a hiccup in its return with 6 out of 30 teams temporarily suspending games due to Covid-19.
If the re-emergence of professional sports is delayed or interrupted, we should see some price weakness in DKNG’s stock price as its revenue stream would be severely affected, and short sellers to look once again to build their positions. If the MLB returns to full participation and the NBA and NHL “bubble games” go off without a hitch, we should expect further DKNG price strength and short sellers to continue their recent trend of short covering. Short covering will continue and probably accelerate if and when the king of sports gambling and fantasy sports, the NFL, kicks off its season in late summer\early fall.
The odds are that the four major professional sports leagues will do whatever is necessary to make sure their respective seasons continue. Which means that while there may be a temporary lull in DKNG’s short squeeze, it is a longshot that the squeeze is over. Look for more short covering to help drive DKNG’s stock price higher and deliver more body blows to short sellers.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.
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