Last time this technical signal sounded, DocuSign saw major upside
The shares of DocuSign Inc (NASDAQ:DOCU) are soaring up the charts this month. The stock hit a one-year high of $67.61 yesterday, and tacked on 32.6% in September following a massive post-earnings bull gap early in the month, and subsequent bounce off its 20-day moving average. The stock is up 0.1% at $67.14, at last check.
Even more upside might be on its way, too, as the stock's new highs are coinciding with historically low implied volatility (IV) -- a combination that has been bullish for the e-signature name in the past. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there has been only one other instance when DOCU stock was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th annual percentile or lower -- as it the case with DocuSign's current SVI of 41%, in the 15th annual percentile.
The data shows that one month after the previous signal, DOCU was up 10.33%. From its current perch, another move this big would put the stock around $74 per share one month from now -- a level the stock has yet to touch. A rally up to this area would position the stock at a roughly 85% year-to-date gain.
Despite the stock's early September bull gap, short interest shot up 46.4% in the two-week reporting period ended Oct. 1. The 14.79 million shares sold short represent a healthy 13.8% of the stock's available float, and would take almost a week to cover at DOCU's average pace of trading -- leaving plenty of room for a short squeeze to help propel the stock higher, should some of these bearish bets begin to unwind.
The options pits have been surprisingly pessimistic too, with DOCU's Schaeffer's put/call open interest ratio (SOIR) of 1.21 arriving in the 96th annual percentile. This suggests a bigger-than-usual appetite for puts over calls among short-term traders.
That being said, now is a good time to speculate on DocuSign's next leg higher with call options, given that low SVI mentioned above. Since near-term options are pricing in lower-than-average volatility expectations, call buyers can effectively increase their leverage on a continued climb in DOCU stock.