Put Traders Rewarded After Docusign Stock's Plunge

DOCU gapped lower on Nov. 2 and had a technical weigh from there

Deputy Editor
Nov 16, 2022 at 12:45 PM
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Subscribers to our Schaeffer's Weekly Options Trader service scored a 119% profit with our recommended DocuSign Inc (NASDAQ:DOCU) November 11, 2022 56-strike put in just over a week. Below, we'll unpack the reasoning for initiating this short position.

When we made our recommendation on Thursday, Oct. 27, DOCU was facing pressure from its August and September lows -- an area that coincided with resistance from the stock's descending 30-day moving average -- even after nabbing a rare analyst upgrade. In addition, the round $10 billion market cap was also weighing on the shares.

Further, options traders were searching for DocuSign stock's bottom, leading to an uptick in bullish options activity. This was per the stocks 10-day call/putt volume ratio of 1.22 at the Chicago Board Options Exchange (CBOE) and the International Securities Exchange (ISE). In the past, reading above 1.0 tended to precede downtrends, and this proved to be true once again.

DOCU Chart November 162022

On Nov. 2, DocuSign stock gapped lower by 9.9%. Guided lower by the descending 30-day trendline, we initiated a 50% partial closeout on Nov. 4. As DOCU kept skidding to a two-year bottom on Nov. 9, we closed out the final 50% of the position on Nov. 11, allowing subscribers to collect an overall profit of 119%, or more than double their money.


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