Weekend Trader

Weekend Trader Series

December 18, 2022

Open Positions Update

  • Please extend the scheduled time-stop date on the Johnson & Johnson (JNJ) February 17, 2023, 165-strike call to Monday, January 9.

The following is this week's recommendation:

 Penn Entertainment (PENN)

Place a limit order to buy the Penn Entertainment (PENN) February 17, 2023 35-strike put at a limit price within range of the current market asked price when you place your order. At the close on Friday, December 16, this option was offered at $4.55. PENN closed at $32.19 on Friday, December 16.

Do not attempt to enter this position after Monday's close.

Please use the following guidelines to manage the position:
  • Exit the position if the option is at a 100% gain from your entry price.
  • If the option has not reached its target profit by 3:00 p.m. Eastern time on Tuesday, January 17, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
The shares of Penn Entertainment (PENN) are trading below $32.23, which coincides with the round $5 billion market cap, as well as their early November, pre-earnings close of $32.83. What's more, the equity is now below a trendline connecting higher lows since September, signaling a potential shift in the short-term trend higher since this period. Further, PENN's consolidation into its declining 12-month moving average could pressure the shares lower, similar to a period in August and September 2021 when this trendline capped a short-term rally before a significant dip. This long-term trendline is also situated in the $37 area that marked resistance from 2018 into the first half of 2020.
Outside of this weak technical setup, the company owns the popular Barstool SportsBook, which faces intense competition from FanDuel and DraftKings in the battle to draw bettors in states like Ohio, where legal mobile betting will go into effect on Jan. 1.

Despite its 36% year-to-date deficit, analysts are still bullish on the stock. In fact, eight of 15 in coverage recommend a "buy," and an unwinding of this pessimism could add even more pressure. Also, since May, shorts have been building positions from a three-year low, and have little reason to cover judging by the price action over this period.

Now looks like the ideal time to speculate with options, as PENN's Schaeffer's Volatility Index (SVI) is at its lowest level since April 2022, which preceded a significant move lower in the shares into June. Our recommended February 35 put has a leverage ratio of -4.1, and will double on a 20% dip in the underlying security.
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