Buy Calls on DocuSign Stock

The stock is ripe for a short squeeze, too

by Lillian Currens

Published on Oct 10, 2019 at 11:40 AM

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. 

DOCU Oct 10

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. 


START YOUR SATURDAY SMARTER.


The best of Schaeffer's market analysis in a 5-minute weekly read.


 
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


The Latest Investor's Guide to Precious Metals
Learn how to protect savings and maximize returns by investing in precious metals.
Boeing Headwinds Hit SPR; Healthcare Stock Falls on CEO Exit
Looking at three of the worst stocks in today's trading
2 Analysts Praise Chipotle Stock Before Earnings
CMG has added 96% in 2019 already
16-Hour "Jump Trades" Unlock New Profit Potential
Click to continue to advertiser's site.