How Options Traders Capitalized On DATA's Recent Surge

Breaking down a big winner from Schaeffer's Leverage Trader

Managing Editor
Jun 15, 2018 at 12:15 PM
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Subscribers to Schaeffer's Leverage Trader doubled their money with the Tableau Software Inc (NYSE:DATA) June 85 call recommendation. We're going to take a look back to see why we were initially bullish on the tech stock, and how the options trade unfolded.

At the time of our recommendation on May 8, Tableau Software was outperforming, and had just rallied above its round 50% year-over-year level, thanks to a positive earnings reaction -- which earned the stock a flurry of upbeat analyst notes. However, with the overhead $93 level still in play, triple the stock's initial public offering (IPO) price, an in-the-money option less impacted by time decay made sense.

Despite the rush of post-earnings bull notes, analysts were still less than enthused. Of the 25 brokerages covering DATA, 15 rated it a tepid "hold," compared to 10 "buy" or better recommendations. There was definitely room for upgrades to push the security higher.

Plus, there was room for a round of short covering, which could also create tailwinds for the shares. At the time of our recommendation, the stock’s short interest ratio stood at a lofty 5.0, meaning it would take shorts a week to cover their bearish bets, at the average pace of trading.

It was also encouraging that near-term options contracts were attractively priced. This was according to DATA's Schaeffer's Volatility Index (SVI), which was ranked in the low end of its 52-week range, hinting at extremely tame volatility expectations.

Shortly after our recommendation, the stock took out the key $93 level in the wake of a mid-May JPMorgan Global Technology, Media and Communications Conference -- a potential catalyst we had identified when entering the trade. Plus, more bullish analysts chimed in on Tableau Software -- including Rosenblatt Securities, which raised its price target to $115 from $100 earlier this week. We closed our position on June 14 for a profit of 101%.

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