Short sellers rushing to cash out bets against gaming stocks

The financial analytics firm S3 Partners released a report Tuesday which shows that many short sellers are rushing to cash out of their bets against casino and gaming stocks, as casinos in states like Nevada and Louisiana start resuming operations.

Boston-based DraftKings saw the largest change in short-seller sentiment with investors covering a portion of their bets against the company over the past week, wrote Ihor Dusaniwsky, managing director of predictive analytics at S3. The stock touched an intraday record on Tuesday before turning lower in the session. Churchill Downs and Boyd Gaming saw a similar shift in conviction albeit to a lesser degree, Dusaniwsky wrote.

The S&P Midcap Casinos & Gaming Index, primarily made up of Caesars Entertainment Corp., Churchill Downs, and Penn National Gaming Inc., has snapped back about 230% from a record low in March. Penn National Gaming, which bought a 36% stake in controversial sports and pop-culture blog Barstool Sports earlier this year, is up 22% so far in 2020.

Gaming and casino stocks were hit heavily when shelter-in-place orders sent shockwaves across the world in March, delivering initial wins to investors that bet against the companies, Bloomberg reports. With the tide changing and losses mounting as the sector rebounds, S3 Partners writes that short sellers will keep cutting their positions, adding 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, Scientific Games Corp, Boyd Gaming Corp, MGM Mirage and Wynn Resorts and year-long losses such as Churchill Downs," Dusaniwsky wrote. He said it may be time for long-focused investors to step in with sentiment swinging.

European professional soccer leagues continued play over the weekend while the National Hockey League heads toward a 24-team return to play that was approved by the league and the players last week.

Speculation surrounding the return of the National Basketball Association has continued to simmer with Major League Baseball looking for answers in order to return to the diamond. Churchill Downs said back in March that the 146th Kentucky Derby will take place on Sept. 5 after being delayed due to the ongoing coronavirus pandemic.