Casino & Gaming Sector short selling has been growing since the Covid-19 pandemic shut down travel and group activities. MGM Mirage is the largest short in the sector while earlier in the year Caesars (CZR), Wynn Resorts (WYNN) and Las Vegas Sands (LVS) were the top shorts.
Short interest in the Casino & Gaming Sector has been increasing since mid-March.
Overall, short interest in the Casino Gaming sector is $6.53 billion, but shorts have been covering some of their exposure as the sector has rallied. To offset some of the mark-to-market increase in their short portfolios, short sellers have bought back -$376 million of their open short positions over the last month with -$319 million of that short covering occurring over the last week. Short interest as a % of Float in the sector is 8.73% and average stock borrow fee cost is only 0.52% fee so this has not been an expensive sector to short.
But after shares shorted increased during the first half of 2020 we have seen short sellers begin covering some of their outstanding short exposure in DraftKings (DKNG) and Penn National Gaming (PENN). DKNG shares shorted have been relatively stable since the beginning of July, but we’ve seen short sellers taking off some of their bets since mid-August with 3 million short shares cover, a decrease of -14%, as its stock price rallied +51%. PENN shorts have been reducing their bets since late May, buying to cover 11 million shares, a -44% decrease in shares shorted, as its stock price rose +115%.
In general, the Casino & Gaming sector was a profitable short play with a total of +$258 million of year-to-date net-of-financing mark-to-market profits in 2020. But shorts were up over +$1 billion in year-to-date mark-to-market profits before September’s sector wide rally. For the year, the casino stocks of MGM (MGM), Wynn Resorts (WYNN), Las Vegas Sands (LVS) and Caesars Entertainment (CZR) are still solidly in the black.
But non-Vegas casino short plays in Penn National Gaming (PENN), DraftKings (DKNG) and Churchill Downs (CHDN) are big losers for the year.
The roulette ball kept hitting double zero for Casino & Gaming short sellers in the month of September with -$702 million of net-of-financing mark-to-market losses in just half the month. If this trend continues, short sellers will be in the red for the year by the end of the month. But not every spin of the wheel was a loss for the shorts in WYNN, CHDN and LVS had decent monthly returns.
DKNG, PENN, CZR and SGMS shorts seemed to be betting against a hot dealer and were down big for the month of September. Both DKNG and PENN extended their year-to-date losses, CZR gave back 43% of their year-to-date gains and SGMS short sellers went from being up +$69 million to down -$4 million for the year.
The continued short covering due to rising mark-to-market losses in DKNG and PENN will help drive their stock prices up. The upward price moves will entice potential long shareholders to buy stock or build their positions and create a spiral of long buying pressure forcing even more shorts out of the trade. With almost $2 billion of short interest between the two stocks, if a sizeable percentage of DKNG and PENN shorts fold, the bid-side price pressure will be significant and be a force in continuing this recent rally.
Unlike playing at the tables in Vegas, short sellers will be exiting their trades and not even have a buffet voucher to show for their efforts.
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.
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.