Short Sellers Have Lost Nearly $1.3B On DraftKings, Penn National

Penn National Gaming, Inc PENN shares are up another 23.5% in the past week in anticipation of Friday’s launch of the new Barstool Sportsbook app.

Online and sports gambling stocks Penn and Draftkings Inc DKNG have been on fire in 2020, and S3 Partners analyst Ihor Dusaniwsky said Thursday that heavy losses are driving short sellers to the sidelines.

MGM Resorts International MGM has the largest short interest within the casino and gaming group at $1.02 billion. However, DraftKings is a close second at $977.4 million followed by Penn at $954.5 million.

Dusaniwsky said short interest in the group has steadily risen since March, but that trend has started to shift in DraftKings and Penn. DraftKings’ short interest is down 14% during the stock’s 51% rally since mid-August. Penn’s short interest has dropped 44% during the stock’s 115% rise since late May.

Short Sellers Getting Burned: MGM and other casino shorts have been highly profitable trades for short sellers in 2020, but not DraftKings and Penn. Short sellers have generated $834.1 million in year-to-date mark-to-market losses betting against Penn and $462.7 million in losses shorting DraftKings.

Those losses have ramped up in the month of September, with DraftKings shorts taking a $310.8 million hit and Penn short sellers enduring $238.4 million in losses.

Dusaniwsky said short covering may continue to push DraftKings and Penn shares higher in the coming weeks.

“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,” he said.

Benzinga’s Take: There have been plenty of profitable short-selling opportunities in the casino and gambling space in 2020 given large-scale shutdowns in Las Vegas and Macau and a crash in global travel. However, U.S. sports gambling and online gambling have been two massive bullish trends in the industry this year, and casino stock short sellers should look to avoid stocks exposed to these growth avenues.

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