Options Bulls Blast DocuSign Stock After Blowout Earnings

The security currently sports attractively priced options, too

Digital Content Manager
Jun 4, 2021 at 10:36 AM
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The shares of DocuSign Inc (NASDAQ:DOCU) are up 10.9% at $216.01 at last check, after the tech concern reported first-quarter earnings of 44 cents per share -- higher than Wall Street's estimated 28 cents per share. The company attributed the strong results to rising customer additions. And though revenue was just in line with predictions, DocuSign still raised its second-quarter outlook.

The brokerage bunch is responding to the report. The security earned no fewer than four price-target cuts earlier, including one from J.P. Morgan Securities to $255 from $271. Citigroup, meanwhile, lifted its price target to $288 from $282. Still, analyst sentiment towards DOCU is bullish, with 14 of the 16 in coverage calling it a "buy" or better. Plus, the 12-month consensus target price of $269.94 is a 21.9% premium to current levels.

The security has had a choppy go of it on the charts over the past year, despite a bull gap that sent shares surging to a Sept. 2, record high of $290.23. After a few months of struggling with pressure near the $260 mark, the equity careened lower. The 320-day moving average helped capture most of this negative price action, and now DOCU is testing its footing back at the 100-day moving average -- a trendline the stock danced around in April. Year-over-year, though, DOCU is up 52.3%.

Additional tailwinds could come from a shift in the options pits, which lean bearish. This is per the stock's 50-day put/call volume ratio of at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 81st percentile of its annual range. This suggests long puts are being picked up at a faster-than-usual pace. 

That shift seems to be already underway. So far today, 66,000 calls and 27,000 puts have crossed the tape, 13 times what is typically seen at this point. Most popular is the soon-expiring 6/4 220-strike call, followed by the 225-strike call in the same weekly series, with new  positions being opened at both. Buyers of these options expect even more upside for DOCU by the end of the day, when these contracts expire.

What's more, DOCU options are a bargain right now. The equity's Schaeffer's Volatility Index (SVI) of 54% sits in the 15th percentile of the past 12 months, indicating options players are now pricing in low volatility expectations.

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