Should Investors Buy Into Unusual Options Volume for DoorDash (DASH)?

Amid a strong opening-week performance on Wall Street, food-delivery service DoorDash (DASH) enjoyed a conspicuously robust upswing. While the benchmark S&P 500 index gained 1.19%, DASH stock managed to deliver a one-day return of 4.43%. Even better, unusual activity in the derivatives market seems to suggest traders are incredibly bullish on the underlying business. Still, investors may need to approach with caution.

Fundamentally, the ultimate trajectory for DASH stock will obviously come down to consumer sentiment. As of the latest read, this datapoint remains stuck near all-time recorded lows. And while many economic metrics point to some justification for optimism, several other statistics suggest exactly the opposite. In particular, a wave of layoffs impacting high-profile, high-paying jobs rippled across North America recently. Naturally, this dynamic will negatively affect discretionary spending.

Indeed, Zacks Equity Research already broadcasted the warning signals. Per its research late last month, DoorDash “…is reeling with slowing business growth. Consumers are spending less on online delivery apps amid the economic turmoil, and the online food delivery business is facing a downward spiral since its boom during the pandemic period.”

The investment resource noted that during the COVID-19 pandemic, DoorDash and rival Uber Eats – under ride-sharing platform Uber Technologies (UBER) – commanded 90% of the U.S. food-delivery market. Better yet, they continued to expand their record-breaking sales figures.

However, the situation changed, Zacks stated bluntly. “Rather than online delivery, customers are switching back to in-store pickups to avoid delivery fees and ordering fewer dishes. Customers are also moving from ordering at fancier restaurants to ordering cheaper fast foods.”

“Per the Wall Street Journal, the number of orders placed on major food-delivery apps DoorDash, Uber Eats and Grubhub grew an average of 5% year over year in October and November, the slowest two-month growth since the pandemic period.”

Despite rising obstacles, options traders appear to be setting the worries aside for DASH stock, instead doubling down on the enterprise.

DASH Stock Sparks Unusual Stock Options Volume

Upon the ringing of the closing bell for the Jan. 23 session, DASH stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This stat shows the difference between the current volume and the average volume over the past month. Usually, traders leverage this data to determine which stocks may be due for big moves ahead.

Specifically, DASH’s volume level reached 108,445 contracts against an open interest reading of 401,304. Call volume hit 84,131 contracts versus put volume of 24,314. Further, the delta between the trailing-month average total volume versus the prior session volume came out to 265.31%. The implied volatility (IV) rank hit 29.51%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.

To summarize, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.

The IV low for DASH stock was 61.19% on Dec. 21, 2022. Several months earlier on May 5, 2022, DASH hit its IV high of 121.43%. Prospective investors should note that per Barchart.com’s technical analysis gauge, DASH ranks as an average 8% sell. Although sentiment is engaged in a tug-of-war between bulls and bears right now, the overall profile leans bearishly.

On the other hand, analyst sentiment ranks toward the bullish zone. Three months ago, Wall Street experts pegged DASH stock a “moderate buy,” breaking down as seven strong buys, two moderate buys and 11 holds. In the current month, the consensus rating remains the same. That said, some pensiveness has impacted analysts’ perspective, with the breakdown consisting of eight strong buys, one moderate buy, nine holds, one moderate sell and one strong sell.

Finally, DASH stock remains on a recovery trek following 2022’s rough ride. In the trailing year, shares slipped over 48%. Therefore, it’s not particularly surprising that DASH’s 60-month beta pings at 1.35, reflecting greater-than-average volatility.

DoorDash Enjoys a Return-to-Office Catalyst

Although decelerating growth trends don’t augur well for DASH stock, it’s also possible that the return-to-work transition may help lift the underlying enterprise. For one thing, it’s not entirely clear that consumers will continue tightening their wallets for food deliveries. In early November last year, Reuters reported that “[e]ven though dining out has resumed in force, people are still ordering food online from the comfort of their homes like they did during lockdowns.”

With major organizations recalling their workers, it’s quite possible that in-office employees will cope through food deliveries, this time to their on-campus workstations. As well, the very fact that recalled workers have a job to be recalled to suggests a base of willing consumers ready to order food online. In theory, this should help DASH stock.

Of course, no one should be under any illusions: DoorDash is a terribly risky idea. Despite broad interest in food deliveries, under the company’s retained earnings line item, it posted a loss of $3.2 billion. Nevertheless, for contrarian speculators, it’s not entirely a wild bet.

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