draft kings (DKNG) stock continues to show relative strength.consumer spending play recently added SwingTrader Portfolio. Let’s take a look at what a cash-backed put trade would look like for his DKNG stock.
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and DraftKings, a leading online sportsbook, digital casino, and daily fantasy sports operator. IBD Stocks of the Day It recently hit a good buy point riding March Madness.
Note that cash-backed puts include writing at-the-money or out-of-the-money put options. Traders also set aside enough cash to purchase stocks. Is this the goal? You can either let the put expire worthless and maintain the premium, or you can take an allocation of DKNG stock and get the stock at a lower price than the current price.
Traders selling puts should understand that they may be allotted 100 shares per contract at the strike price.
Let’s assume you can buy 100 shares of DKNG stock at a price of 42.50 any time between now and April 19th.
DKNG Stock Today: Trades
Based on recent trading, selling a put option expiring on April 19th at a strike price of 42.50 would result in a premium of approximately $150. The put seller is obligated to purchase 100 shares of DKNG stock at his price of 42.50 per share if requested by the put buyer.
Calculate the break-even price of the trade by subtracting the premium received from the strike price.
In this case, the break-even price would be 41.00. This is 6.4% below Tuesday’s closing price.
happy price zone
If the stock remains above 42.50 at expiration, the put will expire worthless, leaving the trader at risk for a healthy return on capital of 3.66%. This translates to an annualized rate of approximately 43%.
The main risk of this transaction reflects the full ownership of the shares. If the stock price falls sharply, you will incur a loss on your trade. However, the loss is partially offset by the premium received from selling the put.
If DKNG stock goes to zero, the maximum loss will occur on the trade. This trade results in a loss of $4,100 per option contract. However, most traders will have cut their losses by then.
A stop loss may be set if the stock price falls below 41.86.
Cash-secured puts are a great way for traders to generate superior returns from stocks they are willing to own. If a put is assigned, investors may be able to reduce their cost basis, take ownership of DKNG stock, and begin selling covered calls to earn additional income from their position.
DKNG Stock Leadership Qualities
according to IBD inventory diagnosisDKNG stock ranks 3rd in the group; comprehensive evaluation 86, EPS evaluation 69 and a Relative strength evaluation 96’s.
Remember that options are risky and investors can lose 100% of their investment.
This article is for educational purposes only and is not a trading recommendation. Always remember to do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster holds a Master’s degree in Applied Finance and Investments. He specializes in income trading using options, his style is very conservative, and he believes that patience waiting for the best setup is the key to successful trading. Follow him on X/Twitter. @OptiontradinIQ
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