Casino & Gaming short sellers were down -$155 million, -2.75%, in mark-to-market losses yesterday led by DraftKings Inc (DKNG) -$45 million loss, -9.35%, in anticipation of professional sports returning to action and providing more sports betting opportunities for the online gaming and betting platform. We follow 61 stocks in the Casino & Gaming Sector with $6.16 billion of short interest, 95% of short interest is concentrated in the top ten most shorted securities in the sector.
Short sellers have begun trimming their exposure in the sector lately, after having shorted the sector heavily during the stay-at-home policies brought about by the Covid-19 pandemic. There was +$1.10 billion of net short selling in the sector from March to May, with $440 million of new short selling executed over the last month. But recently, we have seen short covering in the sector, with -$28 million of net short covering executed over the last week.
DraftKings (DKNG) saw the largest change in short seller sentiment with short selling turning into short covering by the end of the May. DraftKings short sellers had been net short sellers for the first three weeks of last month, adding $263 million of short exposure, but they have been covering a portion of their shorts over the last week with $47 million of net buy-to-covers executed. Churchill Downs (CHSN) and Boyd Gaming (BYD) saw a similar change in conviction with short selling turning into short covering, although to a much lesser degree.
The main reason for the change in sentiment in the Casino & Gaming Sector is much like the action of a seasoned gambler whose winning streak is coming to an end. When the dice turn against you, it is time to cash in your chips and walk away and find a hotter table elsewhere.
From January to April, Casino & Gaming Sector shorts were up +$3.19 billion, +60.42%, in mark-to-market profits. But in May\June these shorts were down -$1.38 billion, -27.23%, in mark-to-market losses with -$155 million of those losses coming on June 1st alone. Casino & Gaming Sector shorts are up “only” +$1.81 billion in year-to-date mark-to-market profits.
Over the last week, Casino & Gaming short sellers gave back a quarter of their mark-to-market profits, losing -$598 million of their +$2.40 billion stack of chips. The biggest losers over the last week were DraftKings Inc (DKNG) -38.8%; Scientific Games Corp (SGMS) -12.0%; Boyd Gaming Corp (BYD) -11.3% and MGM Mirage (MGM) -11.0%.
With casinos in states such as Nevada and Louisiana opening their doors and other states easing their Covid-19 lockdown restrictions as well as the major sports leagues finalizing re-opening plans revenues will begin to once again flow into Casino & Gaming coffers. The recent rally in the sector should continue as investors add these reawakened stocks into their portfolios. With losses mounting and year-to-date profits disappearing short sellers will continue cutting their positions and their buy-to-covers will add to the strength of the rally.
Short squeezes in several of these stocks may occur, specifically those stocks with recent price spikes such as DraftKings (DKNG), Scientific Games Corp (SGMS), Boyd Gaming Corp (BYD), MGM Mirage (MGM) and Wynn resorts (WYNN) and year-long losses such as Churchill Downs (CHDN). It may be time for long shareholders to back up their bets as the roulette wheel is now trending towards the black numbers instead of the red.
Looking at short selling trends over time provides insight into overall market sentiment as well as the strength of bearish conviction in individual equities. Our Blacklight SaaS platform and Black APP provides an up to date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions.
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