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Profit Booster
Make Money 3 Ways from Great Growth Stocks

April 25, 2023

Before we dive into this week’s covered call idea I wanted to address several positions that expired last Friday, and how we will manage those trades …

Market Overview
Before we dive into this week’s covered call idea I wanted to address several positions that expired last Friday, and how we will manage those trades …

We are going to move on from AAL as the stock broke our stop two weeks ago. To execute this trade, you need to:
Sell AAL Stock

While ATI hasn’t broke our stop, the stock is hardly inspiring. Let’s move on from this trade for a small profit. To execute this trade, you need to:
Sell ATI Stock

In terms of UBER and RIG, I am going to continue to sell new calls, though of note, both companies will report earnings in the coming weeks. To execute these trades, you need to:
Sell to Open the UBER May 33 Calls (exp. 5/19) for $0.60 (approximately)
Sell to Open the RIG May 6.5 Calls (exp. 5/19) for $0.25 (approximately)

Moving on …

The market was super slow yet again last week as the indexes were extremely rangebound. The S&P 500 lost 0.05%, the Dow fell 0.3% and the Nasdaq declined by 0.5%. This week, earnings season really gets in gear as 44% of the S&P 500 market cap reports.

The Stock – DraftKings (DKNG)

Why the Strength
Sports gambling has become a multi-billion-dollar growth industry in recent years, and DraftKings is making big waves in this space. The company is one of 40 approved online sports betting platforms in the U.S. and serves more than 20 states, giving it a leading position in the industry. Mobile sports wagering has been approved in only about 60% of the country, but as more states legalize it, DraftKings is well-positioned to increase its market share.

Additionally, betting volumes continue to rise even in well-established markets as new products (such as in-game betting, where the odds change after every play!) become commonplace. Already this year, DraftKings has launched sportsbooks in Ohio and Massachusetts as both states legalized sports betting in January.

While revenue growth remains rapid, possibly more important is that the top brass here is tightening its belt (more than $100 million being cut last year even as it expanded; marketing spend per customer is coming down, showing that initial acquisition costs come down in a big way) and yet is still seeing take-rates increase. The net effect should be that EBITDA should leap into the black by the end of this year (and surge afterward), a fact that has several major Wall Street institutions upping their share guidance. Obviously, this is a big growth industry; some believe 70% of adult men could be gamblers when the U.S. market is mature, and nearer-term, the average amount wagered in a year by an average bettor is forecast to exceed $6,000 by 2025, providing the company with plenty of runway. When DraftKings reports Q1 earnings on May 4, analysts see sales rising 66%, with a 34% increase expected for the full year (likely conservative).

Technical Analysis
DKNG bottomed in the 10 to 12 area last May, June, July, September and October, so when shares began to perk up this year, it had a solid footing underneath it. Like most names, the stock hit a wall near resistance (at its highs from last summer) a couple of months ago, but instead of cascading, DKNG built a very reasonable, 21% deep base, with support near the 50-day line—and then buyers piled on, pushing the stock back to its old highs. Stop — 18


The Covered Call Trade
Buy DraftKings (DKNG) Stock at 21.5, Sell to Open May 21.5 Strike Calls (exp.5/19/2023) for $1.25, or a Net Price of 20.25 or less

Static Return: $125 per covered call (6.17%)

Breakeven: 20.25

Covered Call Return (if assigned): $125 per covered call (6.17%)

Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.

However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 20.25 or less. (In this case 21.5 minus 1.25 = 20.25. Or another example is you could pay 21.25 for the stock and sell the call for $1, which also equals 20.25)

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

Open Positions
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.

Stock Name and SymbolPrice BoughtCurrent Stock PriceStopOption - Price of Call SoldCurrent Option Price
American Airlines (AAL)17.1013.0014April 15 -- $0.46
Uber (UBER)34.5030.5028.5April 34 -- $0.77
Allegheny Technologies (ATI)41.0038.0034April 40 - $3
Transocean (RIG)7.506.105.9April 8 -- $0.42
Fortinet (FTNT)61.0065.0054.5May 65 -- $2.35$2.50
ON Holding (ONON)29.6533.0024May 30 -- $2.60$4.00
ON Semi (ON)79.5073.0071May 80 - $5.60$1.50
10X Genomics (TXG)53.1054.0044.5May 50 -- $6$6.00
Freeport McMoRan (FCX)42.6538.0036May 42 -- $2.40$0.25

The next Cabot Profit Booster issue will be published on May 2, 2023.

Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.