DraftKings Plummets 5.99% Amid Regulatory Scrutiny and Fierce Prediction Market Competition – What’s Next?

Summary
• DraftKings (DKNG) tumbles 5.99% intraday to $32.89, breaking below key support levels.
• Intraday range widens to $35.01 (high) to $32.78 (low), signaling heightened volatility.
• Options chain surges with 24.8M turnover, as put options dominate bearish bets.

Today’s selloff in DraftKings reflects a perfect storm of regulatory headwinds and intensifying competition in the prediction market. The stock’s sharp decline follows news of Kalshi’s parlay product expansion and rising tax burdens in Illinois, compounding investor concerns over margins and growth sustainability. With technical indicators flashing oversold conditions and options volatility spiking, the market is pricing in a critical inflection point for the sports betting giant.

Regulatory Pressures and Prediction Market Competition Spark DKNG Selloff
DraftKings’ freefall stems from a confluence of regulatory challenges and competitive threats. Recent news highlighted Kalshi’s aggressive expansion into parlay betting, directly targeting DraftKings’ core sportsbook revenue. Compounding this, Illinois’ new $0.50 transaction fee on wagers—cited by CEO Jason Robins as a tax burden—has spooked investors. The stock’s decline also follows a failed attempt to maintain momentum post-Q2 earnings, where 37% revenue growth failed to offset margin pressures from promotional spending and NFL season volatility. Analysts now question whether DraftKings can defend its market share against both traditional rivals and decentralized prediction platforms.

Gambling Sector Under Pressure as MGM Slides 2.33%
The broader gambling sector mirrors DKNG’s struggles, with sector leader MGM Resorts International (MGM) down 2.33% on concerns over regulatory crackdowns and shifting consumer preferences. While DraftKings operates in a more fragmented, tech-driven niche, its challenges—rising compliance costs and competition from unregulated platforms—mirror those of land-based operators. However, DKNG’s 52-week low of $29.64 suggests a more precarious position compared to MGM’s relative stability, as prediction markets increasingly erode traditional sports betting margins.

Bearish Technicals and High-Leverage Puts Signal Short-Side Opportunities
• RSI: 14.93 (oversold)
• MACD: -2.52 (bearish divergence)
• 200-day MA: $40.26 (price 31.5% below)
• Bollinger Bands: $34.08 (lower band) vs. $32.89 (current price)

Technical indicators confirm a breakdown in DraftKings’ long-term trend, with RSI in oversold territory and MACD signaling bearish momentum. The stock is now trading near its 52-week low, with critical support at $31.50 (200-day MA minus 20%). Aggressive short-term traders may target this level using leveraged puts, while longer-term investors should monitor the $34.08 Bollinger Band for potential rebounds.

Top Options Picks:
1. DKNG20251017P31.5 (Put, $31.50 strike, 10/17 expiry):
• IV: 54.45% (moderate)
• Leverage Ratio: 54.98% (high)
• Delta: -0.291 (moderate sensitivity)
• Theta: -0.0098 (low decay)
• Gamma: 0.110 (high sensitivity to price swings)
• Turnover: $97,253 (liquid)
• Payoff (5% downside): $1.18 per contract
This put offers high leverage and liquidity, ideal for capitalizing on a potential $31.50 support break.

2. DKNG20251017P32 (Put, $32 strike, 10/17 expiry):
• IV: 52.21% (moderate)
• Leverage Ratio: 45.19% (high)
• Delta: -0.346 (moderate sensitivity)
• Theta: -0.00395 (low decay)
• Gamma: 0.123 (high sensitivity)
• Turnover: $28,039 (liquid)
• Payoff (5% downside): $1.68 per contract
This contract balances leverage and time decay, offering a safer play on the $32 psychological level.

Action Alert: Aggressive bears should prioritize DKNG20251017P31.5 for a 5% downside target. If $32.89 holds, consider a mean-reversion trade with DKNG20251017C33 (call, $33 strike) as volatility stabilizes.

Backtest DraftKings Stock Performance
Key takeaway • Since January 2022 DKNG experienced 39 daily drops of 6 % or more. • The stock typically needs almost a week to recover: the cumulative excess return first turns significantly positive on day-6 (~ +4.8 %), peaking around day-8 (~ +5 %). • One-day and two-day returns remain slightly negative on average, so “buy-the-dip” works only if you are willing to hold for several days. • Beyond the first month the advantage fades; by day-20 the excess return shrinks below +4 % and loses statistical significance.Assumptions filled in automatically 1. “Intraday plunge” was proxied with the daily close-to-close percentage change (data granularity limitation). 2. Back-test window set to 30 trading days post-event—a common horizon for short-term event studies. 3. Price series used: close price. 4. All dates between 2022-01-01 and 2025-10-07 were evaluated.Explore the full event-study dashboard below.Feel free to drill down into the interactive metrics, or let me know if you’d like to adjust the event definition (e.g., different threshold, intraday high-low basis) or testing horizon.

DKNG Faces Critical Support Test – Aggressive Shorts Target $31.50
DraftKings’ selloff reflects a market pricing in regulatory and competitive headwinds that could persist into Q4. With RSI in oversold territory and Bollinger Bands tightening, a rebound to $34.08 is possible, but a breakdown below $31.50 would validate bearish technicals. Investors should monitor the sector leader, MGM, which fell 2.33% today, as a barometer for broader gambling sector sentiment. For now, the DKNG20251017P31.5 put offers a high-leverage, low-decay play on the critical $31.50 support level. Act now: Short DKNG if $32.89 breaks, or buy the put for a defined-risk trade into the October 17 expiry.