Someone’s looking for a strong earnings report from a new technology stock.
Docusign (DOCU), a provider of online contracts and e-signatures, went public in April 2018. Earnings beat estimates the first three times it reported. And, yesterday a large options trader positioned for a rally with the next set of numbers due after the closing bell on Thursday.
Unusual volume was detected in DOCU’s June 55 calls halfway through the morning. Large blocks started hitting for $1.45, followed by more buying at $1.55. The activity continued through the afternoon, pushing volume to almost 16,000 contracts.
Calls fix the price where a security can be purchased, so they tend to appreciate when shares move higher. Traders use them to manage risk, although Monday’s options face potential losses from time decay.
That’s when call or put loses extrinsic value into expiration. The process usually occurs at a smooth pace, but it can happen more dramatically around big events like quarterly results. The net result is that Monday’s call buyer needs a sharp rally just to break even.
How much? DOCU must hit at least $56.50 just to recover their principle. It closed at $50.57 yesterday, down 8.78 percent.
Monday’s selloff seemed to result from negativity toward other technology stocks. The broader weakness followed reports that major firms Alphabet (GOOGL), Facebook (FB) and Apple (AAPL) may face U.S. anti-trust actions.
It was also a noteworthy session for DOCU because total options volume spiked past 30,000 contracts for the first time ever.
In conclusion, DOCU has drifted aimlessly since last year’s IPO. Now someone’s looking for its strong earnings track record to finally translate into a rally.