It’s no secret that DraftKings (DKNG) has been an underperformer. While the company stands to benefit from the growing popularity of online gaming and sportsbooks, its stock has yet to reflect that potential. Year-to-date, DKNG is down more than 8%, and the past month has been especially rough, with shares sliding roughly 22%.
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However, there is light at the end of the tunnel. The bottom line for traders, on a quantitative level, is that DraftKings is currently flashing a reversal signal. On a probabilistic basis, you have a greater chance of upside than downside with DKNG stock. As such, a simple multi-leg options strategy — specifically a vertical spread to expand the leverage of small price movements in the underlying security — could be advantageous.
To set expectations, the focus with the quantitative approach will be on the near-term. That’s because the methodology relies on empirical data and statistical signals — and these often decay or change as market conditions evolve. So, when I say that I’m Bullish on DKNG stock, it’s for the near-term picture. I’m not looking months, let alone years, down the line.
Instead, the point of this article is to identify potentially mispriced options trading ideas, specifically those mispriced in our favor.
Utilizing Market Taxonomy to Our Advantage
Perhaps the best way to illustrate the quantitative approach is to step outside the markets altogether. Consider marine ecologists studying sharks—particularly migratory species like great whites. To understand their behavior, researchers rely on technology, tagging individual sharks to develop detailed behavioral profiles that distinguish great whites from other species, such as reef sharks.
In essence, ecologists isolate specific population groups from the broader ocean ecosystem, allowing for deeper insights. Similarly, in quantitative finance, we can apply a comparable “tagging” process to identify and track distinct market profiles.
However, stock prices naturally exist as continuous scalar signals, constantly fluctuating—$10 one session, $9.99 the next—making classification inherently difficult. To address this, we can transform these continuous signals into discrete ones, effectively grouping prices into defined behavioral states.
This conversion offers a significant advantage: discrete behavioral states can be tagged, monitored, and analyzed as independent populations. Each state—ranging from extremely bearish to extremely bullish—exerts a unique influence on the broader market environment.
Moreover, as demonstrated through GARCH (Generalized Autoregressive Conditional Heteroskedasticity) analysis, volatility does not diffuse linearly; it clusters in a nonlinear fashion. Put simply, today’s volatility is primarily related to yesterday’s, and recent catalysts tend to exert far greater influence than those buried in the distant past.
What’s more, by isolating individual population groups, we have a probabilistic distribution of likely outcomes. That’s what separates the quantitative approach from mere guesswork and wishful thinking.
Doing the Math on DKNG Stock
The next logical step is to roll up our sleeves and start crunching the numbers. As a baseline, DKNG stock exhibits a general upward bias. Looking at data since its public debut, a 10-week-long position has historically delivered an exceedance ratio — or profitability rate relative to the starting point — of approximately 63.1%.
Assuming that the anchor price is $34.10 (Friday’s close), the median price of baseline outcomes would largely be expected to cluster around $35. However, to extend the marine ecology analogy, we’re not interested in studying the aggregate behaviors of all sharks. We’re interested in a specific shark species.
In the past 10 weeks, DKNG stock has printed a 4-6-D sequence: four up weeks, six down weeks, with an overall downward trajectory. This sequence isn’t special per se. However, because it’s structured as a discrete signal (rather than a continuous scalar), we can tag it — much like a scientist would tag a tiger shark.
Through this tagging, we can observe the 4-6-D sequence’s migratory pattern. Over the next 10 weeks, its exceedance ratio is 67.7%. Further, median prices of outcomes tied to the sequence tend to cluster about a buck higher than the baseline.
With all this in mind, I’m looking at the 35/37 bull call spread expiring December 19. This transaction involves buying the $35 call and simultaneously selling the $37 call, for a net debit of $88 (the maximum possible loss on the trade). Should DKNG stock rise through the second-leg strike of $37 at expiration, the maximum profit is $112 — a payout of over 127%.
Here, the breakeven price is $35.88, which is a legitimately reachable target based on the statistical response to the 4-6-D sequence. With some luck, DKNG stock could stretch to $37, which is also not an unreasonable assumption based on past analogs.
What is the Target Price for DKNG Stock?
On Wall Street, DKNG stock earns a Strong Buy consensus rating based on 25 Buys, one Hold, and one Sell rating acquired over the past three months. The average DKNG stock price target is $51.36, implying ~48% upside potential over the coming 12 months.
Using Data Science to Capitalize on DKNG Stock
While fundamental and technical analyses each have their merits, gaining deeper insight into effective options strategies requires a quantitative approach. For DKNG stock, translating its price action into a quantitative profile allows us to isolate distinct behavioral patterns. From these behaviors, we can derive forward-looking probabilities — valuable inputs for making more informed and strategic trading decisions.