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New ETFs Offer Leveraged Bets on DraftKings Stock

Two new exchange-traded funds (ETFs) are designed to help traders who are looking to increase their short-term gains on the highly traded DraftKings (NASDAQ: DKNG) stock.

Two weeks ago, the first single stock ETFs linked to shares of the online sports betting behemoth were introduced to the market: the Defiance Daily Target 2X Long DKNG ETF (NASDAQ: DKNX) and the T-REX 2X Long DKNG Daily Target ETF (CBOE: DKUP).  Both new ETFs aim to deliver 200% the daily returns of DraftKings stock.  Swaps and options are examples of derivatives that are utilized to achieve that goal.

"DraftKings Inc. is a leading digital sports entertainment and gaming company, offering sports betting, daily fantasy sports, and online gaming across regulated markets in the U.S. and beyond,” noted Defiance in explaining the rationale behind the DKNX launch. “As legalized sports betting expands and consumer engagement accelerates, DraftKings continues to innovate with technology-driven platforms, data analytics, and strategic partnerships.”

Together with the T-REX 2X Long BULL Daily Target ETF (CBOE: BULU), a double-leveraged investment in online brokerage Webull (NASDAQ: BULL), REX Shares introduced DKUP.

Geared ETF Play on DraftKings Could Be Interesting

The fact that DraftKings is a well-known stock that is held by market participants who would be inclined to use geared ETFs is only one of several reasons why aggressive, risk-tolerant retail traders may target DKNX and DKUP.

Furthermore, during its more than five years on the market, DraftKings' common stock has experienced periods of volatility, which is necessary to provide the quick short-term gains that leveraged ETF traders rely on. Nevertheless, some data suggests that DraftKings' volatility is declining.

“The current IV (34.7) in DKNG is -5.3% below its 20 day HV (36.7) suggesting that options markets are predicting future volatility to trade below the most recent 20 day realized volatility,” according to Market Chameleon. “Traders frequently use the difference between implied volatility and historical volatility to measure divergence from the mean. Using the 252 HV as the long term benchmark, the implied volatility (34.7) is currently -27.6% below the 252 day HV (48.0) mean.”

Even while the short-term volatility measures of the gaming stock might be trending, this does not mean that traders should make long-term investments in DKUP or DKNX.  Leveraged ETFs generally perform admirably when it comes to meeting their stated goals over a period of a few days or a week, but the longer the funds are kept, the more likely it is that the returns will fall far short of what investors had hoped for.

Some Investors and Clients of DraftKings May Love New ETFs

In order to attract ambitious, mostly youthful traders, certain ETF issuers, such as Defiance and REX Shares, have pushed toward single-stock ETFs on very popular stocks.

According to REX Shares, the introduction of BULU and DKUP broadens "the T-REX ETF suite, which now includes over 20 leveraged and inverse single-stock ETFs providing 2x and -2x exposure to names like Tesla, NVIDIA, MicroStrategy, and spot crypto with Bitcoin and Ether."

With Defiance's offerings are single-stock exchange-traded funds (ETFs) on Palantir (NASDAQ: PLTR), Robinhood Markets (NASDAQ: HOOD), and Strategy (NASDAQ: MSTR), all of which are popular with younger investors, many of whom are also DraftKings customers.