DOCUSIGN (DOCU) Unusual Options Activity Debrief

Docusign Unusual Options activity breakdown, and a brief discussion into the usage of vertical spreads

Shares of Docusign (DOCU) traded as low as 64.30 today, Friday June 10th, following Thursday's afterhours earnings call.

DOCU is currently trading at its 52 week low

Prior to the close of the trading session some unusual options activity was flagged by Snorlax. A pair of 1 DTE (days to expiration) DOCU bear put spreads (more formally referred to as a vertical put debit spread) were opened at 3:34 and 3:35 PM.

75/85 and 73/83 strike put debit spreads expiring the very next day were opened shortly before the close

Here's a closer look at the two spreads, each highlighted in yellow:

The 75/85 put spread was opened at $3.33 per contract (5.10 minus 1.77) and the 73/83 put spread was opened at $2.93 per contract (4.30 minus 1.37).

A spread is an options strategy in which a trader will buy and sell multiple options of the same type (call, or put) for the same underlying asset. The options will vary in terms of strike price, expiration date, or both.

In the case of each of these two spreads (75/85, and  73/83) the variation comes in the strike price, given that all of the contracts involved expire on the same date.

With DOCU currently trading at 66 dollars both of these spreads are well ITM for a max gain

The max gain of a spread can be easily calculated by subtracting the low strike price from the high strike price.

Both the 75/85 and the 73/83 put spreads have a 10-wide gap in strikes, so 10.00 would be the maximum equity possible from these positions.

Using the Unusual Whales Options Profit Calculator the 75/85 put debit spread's profit/loss profile can be seen here:

The max gain is 10.00, but the max PROFIT is calculated by subtracting the max gain from the cost of entry

The trader(s) entering the put spreads will most certainly be missing out on a lot of profit had they opted for a lone put position instead of using a spread (which essentially acts as a tool to both limited risk as well as reward).

Let's revisit the spreads and take a look at the price of the 85p.

It was trading at 5.10 at the time of these transactions. It will likely close today at a value of around 19.00 (given a DOCU closing price of 66). This is obviously leaps and bounds much more profit than that of the 75/85 spread (6.67 max profit, 10.00 value).

However, for the trader with a smaller account, the use of spreads may be more optimal than the purchase of lone calls and puts

Consider entering the 75/85 spread at 3.33 per contract vice the lone 85 put at 5.10. You've accomplished several things here:

  • You're in the trade
  • At reduced risk (keep in mind that using the spread also caps max profit)

Now assume that shares of DOCU will not drop so low, and will instead close at 77.

The lone 85p, which was trading at 5.10, would now be worth 8.00 (85 subtracted by 77) for a gain of 2.90 (approximately 56%).

Now consider the profit profile of the spread. The 75/85 spread would still be valued at 8.00 but from a 3.33 entry instead, for a percentage gain of approximately 140%.

Spreads are a powerful tool that are often ignored by newer traders, which is rather unfortunate given that this type of strategy may be better suited for them.

To tally up the final profit from this unusual options activity...

The 75/85 spread, purchased at 3.33 a contract for 741 contracts:
$247,000 -> $741,000

The 73/83 spread, purchased at 2.93 a contract for 471 contracts:
$138,000 -> $471,000

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