DoorDash (DASH) Option Traders Bet on Earnings Repeat

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DoorDash (DASH) Option Traders Bet on Earnings Repeat

Investors in DoorDash, Inc. (DASH) have held share prices inside a narrow range ahead of the company’s fiscal second quarter results report. At first look, it seems that option traders are poised for a good move, with an increasing number of call options in the open interest. If DASH reports a negative earnings surprise, the extraordinary option activity might cause a dramatic downward trend in the share price.

A growing amount of call options remain in the open interest for DASH, and option premiums are now at an unusually high level. Trading volumes show that traders have increased the quantity of call options acquired and put options sold in expectation of a positive earnings release. If these trades were to reverse, the DASH share price may face unanticipated negative pressure.

It is tough to forecast which way a stock will move following results. A comparison of the stock’s price action and option activity, on the other hand, reveals that if DASH releases a bad report, the company’s share price might decrease, falling below its 20-day moving average following the announcement. This is feasible because options are priced anticipating an upward trend, but unexpected bad news might take traders off guard and cause a rapid drop in share price.

Key Takeaways

  • Ahead of the results release, traders and investors have limited the share price range.
  • Recently, the share price closed above its 20-day moving average.
  • The price of calls and puts predicts a greater move to the upside.
  • The volatility-based support and resistance levels enable a greater downward slide.
  • This setup provides traders with the possibility to benefit from an unexpected earnings outcome.

A comparison of the intricacies of option behavior and stock price may provide useful information to chart watchers; nevertheless, it is critical to understand the context in which this price action occurred. The chart below displays the DASH share price movement as of Wednesday, August 11. This resulted in the setting for the earnings report.

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Current Trends

DASH stock has been yo-yoing above and below the 20-day moving average for the last month. During this time span, the lowest DASH share price was approximately $163 in mid-July, and the highest share price was around $193 in early August. The stock closed in the center of the top range shown by the technical studies on this chart.

The indicators used in the research are 20-day Keltner Channel indicators. These are price levels that are multiples of the stock’s Average True Range (ATR). This array emphasizes how the price has risen over the 20-day moving average in the week before earnings. This price movement in DASH shares suggests that investor confidence is increasing as the earnings release approaches.

Tip

The Average True Range (ATR) has become a widely used technique for illustrating historical volatility over time. The average amount of time employed in its computation is 10 to 20 time periods, which comprises two to four weeks of everyday trading.

In this context, where the price trend for DASH has just closed above its 20-day moving average, chart watchers can see that traders and investors are exhibiting increasing confidence as earnings season approaches. It’s worth noting that DASH’s share price jumped from slightly below the moving average to just above it in the week before results. As a result, chartists must decide if the change reflects investors’ expectations for positive profits or not.

Option trading information may give extra context to chart viewers, allowing them to make an opinion about investor expectations. Calls have recently outperformed puts by a significant margin. On Tuesday, approximately 2,000 calls were exchanged for every 1,000 puts. Typically, this volume suggests that traders are optimistic about the approaching news.

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Tip

The Keltner Channel indicator shows a series of semi-parallel lines based on a 20-day simple moving average, as well as an upper and lower line. Because the higher lines are produced by adding a multiple of ATR to the average price and the lower lines are drawn by subtracting a multiple of ATR from the average price, this channel indicator is an ideal visualization tool for displaying historical volatility.

Trading Activity

Option traders have priced their options to gamble that DASH shares will close inside one of the two boxes illustrated in the chart between now and Aug. 20, the Friday after the earnings report is revealed. The price offered by call option sellers is shown by the green-framed box. If prices rise, there is a 36% chance that DASH shares will settle inside this range by the end of the week. The red box reflects the cost for put options, which have a 31% probability of going down after the announcement.

It’s worth noting that the open interest included over 66,000 calls vs over 67,000 puts, illustrating the bias that option purchasers had, as traders preferred puts over calls by a slim margin. It’s worth noting that call traffic outpaced put volume by more than 2-to-1 on Tuesday, which might further bias open interest data in favor of call options. Despite the large amount of puts in the open interest, implied volatility for these options has been declining, indicating that they are being sold rather than purchased.

A 10-day Keltner Channel analysis set at four times the ATR yielded the purple lines on the chart. This metric creates closely connected price action zones of strong support and resistance. These areas appear when the channel lines have made a noteworthy turn during the last three months.

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The levels marked by the turns are noted in the chart below. What stands out in this chart is how close the call and put prices are, with lots of opportunity to go either way, but with greater room to the downside. This shows that, despite recent call volume outweighing put volume, option purchasers are unsure about how the business will report. Although investors and option traders may not anticipate it, a surprise report might cause prices to surge or fall drastically.

These support and resistance levels demonstrate a wide variety of price support and resistance. As a consequence, any unexpectedly positive or unfavorable news might take investors off guard and result in an abnormally significant shift. Following the prior earnings report, DASH shares increased by 222.15% the next day and continued to soar the following week. Following this news, investors may anticipate a similar price movement. With so much opportunity for movement in the volatility range, share prices may increase or fall more than predicted.

Market Impact

DoorDash has not been a publicly listed firm for very long, thus determining earnings patterns is tricky. Whatever the study says, it should have an impact on equities in the online content and information business. A strong report might boost other industry companies like Airbnb, Inc. (ABNB) or Spotify Technology S.A. (SPOT).It may also have an impact on exchange traded funds (ETFs) like Vanguard’s Total Stock Market ETF (VTI) or the Renaissance IPO ETF (IPO).

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