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2 Strategies To Trade Thursday's DocuSign Earnings Report Using Options

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2 Strategies To Trade Thursday's DocuSign Earnings Report Using Options

DocuSign (NASDAQ: DOCU) is due to report earnings for the September quarter on Thursday after the closing bell. The stock is up 191% this year as the pandemic has fueled the need for companies that facilitate working from home.

Here are the consensus Wall Street estimates for Thursday:

  • Earnings Per Share: $0.13
  • Revenue: $361.15 million

How DOCU Historically Moves Before, During, And After Earnings

More often than not, DocuSign closes lower in the two days and one day before earnings. The average return for DOCU on such days in its history as a public company is -2.4%. Notably, the stock has not closed higher on either day preceding its report in the last five quarters.

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Source: Market Chameleon

On the day of earnings, DOCU trades up an average of 0.6% (the avg return field below) but is more than likely to trade down than up. 

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Source: Market Chameleon

In the days after earnings there is little discernable pattern for DOCU. Though the average return is higher in the 1-day, 3-day, 1-week, and 2-week periods, the number of occurrences in which the stock trades higher or lower is evenly split. 

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Source: Market Chameleon

So, what kind of options trade should you make in DOCU into Thursday’s report? 

If You Are Bearish

For bearish DOCU traders, you may want to consider a Bear Call Spread.

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Source: Market Chameleon 

This strategy involves buying a call option and selling a call below it. This strategy is for traders who think DOCU will close lower by Dec. 4.

In the case of the trade outlined above, the payout diagram is as follows:

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Source: Market Chameleon

The Bear Call Spread will profit if at expiration the stock is below $217. The maximum gain will occur if the stock is below $215, at which point the strategy will earn $200 per contract. The maximum loss will occur if DOCU is above $220 at expiration, at which point the strategy will lose $300 per contract.  

According to Market Chameleon, buying a call option at the 220 strike and selling a call at the 215 strike would result in a 16.7% theoretical edge right now over typical market conditions. 

If You Are Neutral

For traders who are neutral but who expect DOCU to make a small move in either direction, a Credit Iron Condor is appropriate. 

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Source: Market Chameleon

This trade is a way to take advantage of implied volatility by buying a put, selling a put above it, buying a call, and selling a call below it. Below is a payout diagram of the call option described above at expiration.

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Source: Market Chameleon

In this case, the trade will profit if DOCU is between $196.21-$236.29 at expiration. The maximum gain will occur if the stock is between $202.50-230, at which point the trade will net $629 per option. The maximum loss is $1,121, and will occur if the stock is at $185 or below or $247.50 and above at expiration. 

According to Market Chameleon, putting on a credit iron condor for Dec. 4 expiration at the specific strike prices outlined above would result in a 15.2% theoretical edge over typical market conditions. 

 

Image: DocuSign

 

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