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Investors Betting on DraftKings (DKNG) - YouTube
Channel: TD Ameritrade Network
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welcome back it's fomo time taking a
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look at DraftKings stocks made an
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impressive rally really what's been
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building on it looks like going back to
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may but I would say it really kicked it
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into overdrive the latter parts of last
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month so it's really been the better
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parts of let's say two three weeks that
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DraftKings has really kicked into gear
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here and moved back over the 20 Mark
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I've probably have too much to say about
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drafting so I'm gonna try to consolidate
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because I think this is such a fun name
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to talk about given of course that we
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are ahead of the NFL season which is
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also a great time for DraftKings as well
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as myself as I am passionate into
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fantasy football but DraftKings like
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Alex you just pointed out has seen a
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nice few weeks now putting actually it's
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month-to-date gains at around 50 percent
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I mentioned the week-to-date gain at
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around 14 but that is it's dwarfs
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basically the gain it's seen over the
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last several weeks part of this was when
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they would release their second quarter
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earnings last week we did see an 11
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Spike last Friday now today we're just
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building on that momentum now last week
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they did raise their guidance and they
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highlighted actually regarding more
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States launching legal sports betting
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which then fits the news today very
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perfectly when they jumped after
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Massachusetts basically passed a bill or
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signed a bill into law that will allow
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legal sports betting which of course
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then benefits a name like DraftKings and
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I have to imagine pen gaming as well but
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they do say say they expect to perform
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better than they had initially
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anticipated going forward which is
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sentiment we're not really hearing
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across the board so I think that was
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very welcomed by the street and I think
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the another highlight of this company is
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that their actual monthly unique paying
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customers Rose 30 percent in second
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quarter from a year ago more interesting
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than that though their average revenue
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per customer also jumped 30 percent to
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103 dollars which was I think promising
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for this company that has been beaten
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down so significantly since really it's
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I its IPO I mean this name saw such a
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surge and then has seen such this fall
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sort of alongside so many of these high
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beta names Alex we discussed now 35
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States including Washington DC have
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legalized Sports wagering however
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DraftKings operates only in 17 States
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and they did say they're looking to
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expand into Maryland Ohio Puerto Rico
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and Kansas which would then actually
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bring its sports betting offerings to 44
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of the United States this is very very
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promising to me because I'd say this
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means they're actually under penetrating
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this Market that they still have room to
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grow I think that's always promising
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when you can say that this doesn't look
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like an over saturated Market they only
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if they gained those States they only
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have 44 of the U.S so I just think that
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just goes to show the growth story that
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is still DraftKings they also have
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expanded on their advertising I've said
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it before I'll say it again DraftKings
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ads follow me everywhere I mean they are
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they must spend like a fortune on that
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because I cannot Escape it but I think
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perhaps a good thing for brand
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recognition when of course you're
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competing with other big names and sort
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of trying to get your consumers to be
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loyal to you they're also in their most
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recent earnings call last week they said
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they had not been impacted by the
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broader weakness in the economy so very
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promising report from them last week and
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we're sort of seeing that sentiment now
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trickle into this week although I guess
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the week is basically over but a 14 gain
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for this week not bad
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yeah and companies like DraftKings and
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the kind of customer acquisition phase
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of uh the company where they're not yet
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profitable they have a business model
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that has been established for a long
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time in terms of uh the sports wagering
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and and setting the odds and and how
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things are set with the minus 110
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ultimately that could be disrupted down
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the line but
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they're not making money because they're
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spending all of their money trying to
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get more players right now or payers or
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into their program or into their
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offering they're making two big bets one
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the continued legalization and expansion
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of markets through of course the
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legislature out of their control they
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can do their best alongside their peers
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in the industry to to lobby for that and
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ultimately down the line we'll see where
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it goes but more or less in in their
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control depending on who you ask would
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be the loyalty to their app or their
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sports book I would say the Casual
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better
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only wants to put you know a handful of
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dollars on a game that they're watching
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probably isn't going to sign up for 30
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different ones and shop around for the
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best lines the more uh entrenched those
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are into this world though the more
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likely they're going to be doing that
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and so DraftKings is really trying to
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get the Casual better uh the smaller
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wager uh kind of Market into their
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platform and hoping that they'll be the
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Premier Premier player uh within this uh
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ever expanding Market uh we'll see if
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they're able to execute on that names
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like FanDuel and of course a lot of the
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Legacy players are trying their best to
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make sure that DraftKings doesn't run
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away from the pack if you will but uh
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it's certainly going to be an
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interesting thing to watch unfold but I
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think you made a good point in terms of
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you know how are they uh well they're
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one they're not making any money but
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they have to be spending a fortune on
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ads and they are yeah and I think that's
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a really good point that the fact that
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they're not yet profitable because
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they're not it's not like they're
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dominating this Market I mean they are
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still one of the many players I just
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think it's so interesting to see really
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from a country standpoint that there is
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so much room for really all these names
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to grow so it's sort of like this could
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be beneficiary to all these names with
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the fact that we just don't have all of
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our states legal in terms of sports
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vetting which I don't really understand
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why but that's my own personal take but
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when we're looking at trading this name
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Alex of course earnings are behind us
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they were last week we have seen a nice
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run-up this week and this month Shares
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are still down about 28 year-to-date
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though
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yeah and so again I talked about at the
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beginning of the show varying degree is
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the probability of success in varying
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degrees of notional risk and so this
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one's going to be kind of smack dab in
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the middle it's a bullish example trade
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in which we're buying a call vertical
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one of the strikes is going to be in the
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money one of the strikes is going to be
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out of the money and the idea is to have
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a one-to-one risk reward ratio so kind
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of a 50 50 odds is kind of how that
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would be priced and then break even
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being basically where we currently trade
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and so what I think is interesting here
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if we kind of go through of course the
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strikes we're going out to September
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buying the 17 and a half selling the 22
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and a half for uh two dollars and fifty
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cents Break Even would be 20. the time
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the stock was trading roughly 20 it's
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extended its gains a little bits closer
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to 20 and a half now so I would be
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surprised if this was trading for uh 250
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at this point might have crept up a
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little bit but nonetheless for the
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thought experiment uh Jenny I think it's
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interesting because if you look at going
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back to rivien we spent the least amount
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of money but we needed something to
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happen in the case of Baba for the most
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risk we needed nothing to happen we just
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couldn't be wrong and in the case of
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DraftKings we took a middle amount of
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risk in this particular illustration and
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if we're if we're just nothing happens
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we don't we're not right we're not wrong
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we break even if we're wrong we lose
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money and if we're right we could make
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money and I think this is really what it
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comes down to any of these strategies
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could be applied to any name depending
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on a particular conviction level of a
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particular Trader on whatever the name
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may be they could be flipped around and
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looked at on the put side for uh in the
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case of the call uh calendar and the
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call vertical and then of course in the
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case where we sold for who you could
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sell a call vertical if you're more
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bearish
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in this case we're just using these
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names as our illustration for these
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conversations but you can see risk
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profile rather than being up in the
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profit Zone like we were for Alibaba
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we're actually down in the break even
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Zone uh in DraftKings if we're wrong we
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can lose 250 if we're right we can make
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250 break even be 20. but I wanted to
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illustrate something else here on the
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chart
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red is the the Lost Zone dashed line is
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Break Even gold is the profit Zone you
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can really see the perspective one this
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rally over uh the last few uh weeks and
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going back to may but also that we
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chopped around in this zone for quite
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some time during the first quarter of
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this year if you're looking at that and
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saying maybe that'll happen again
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possibly opportunities uh to see this
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one reach Max profitability I think you
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put that really well and I also think
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it's a way to sort of consider hey
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shares jumped as high as 74 dollars a
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share and have fallen as low as around
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nine dollars so now at about 20 50 it's
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sort of way to consider the fact that
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there is some risk with this name just
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given its volatility over the last year
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but this trade does also contain
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multiple legs that can lead to higher
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transaction fees short options can be
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assigned at any time and carrying option
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positions into expiration can add risk
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like unanticipated exercise or
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assignment
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