An interesting question was posted on this forum about MNDY’s stock price action over the past two weeks.
It was noted that from Sept 6th to Sept 9th, Monday.com’s stock rose from $110 to $130, which was an 18.7% gain. The next week, it followed up with another 2.3% rise, closing out Sept 16th at $133. This represented an impressive, two-week gain of 21.4%.
During this same timeframe, the market (SP 500 index) led investors on an up-down roller coaster ride resulting in a loss of 0.9%.
Now, there was no major news about the company during this period. No new product launches. No acquisitions or mergers. No analyst upgrades or downgrades. Nada.
So what gives?
Why did this stock perform so well, while the rest of the market did not?
I was not satisfied with the responses provided and I went digging for better answers.
Setting the context
As retail investing (and trading) increased over the last 2-3 years, interest in equity options trading exploded. It has more than doubled from about 4.4B contracts traded in 2019 to more than 9.4B contracts traded in 2021. 2022 YTD is keeping pace with that growth rate.
Last Friday, we had a major, quarterly options expiration, fondly known as triple witching. These events result in about $4-5T worth of options being sold, bought or set to expire during that week.
Options expirations are usually accompanied by increased volatility in markets, especially on the adjacent Thu and Fri.
MNDY has a small no. of shares outstanding (45M shares) as compared to other stocks such as DDOG (316M shares), CRWD (233M shares) and SNOW (320M shares).
Average daily shares trading volume for MNDY is about 682k shares. This is very low as compared to 4.6M shares traded daily in DDOG, 3.8M shares traded daily in CRWD and 7.7M shares for SNOW.
What played out last week
From Sept 6-9th, MNDY rose as tech-investor bullishness returned and markets gained 4%.
A total of 5,122 MNDY options contracts expired on Fri, Sept 16th, representing about 512,200 shares.
As these options expired, investors could take their profit/loss and walk away or re-invest them into new options dated into the future.
MNDY investors seem to be bullish and are betting that the stock will rise in the future. The put-to-call ratio by volume for MNDY is 0.54 which means that bullish investors bought 2 call options for every 1 bearish put option for the stock. In comparison, the put-to-call ratio for DDOG is 1.09, for CRWD is 0.88 and for SNOW is 1.31.
As investors buy call options, market makers (options trading institutions) sell those call options to them. So investors are in a bullish position, while market makers are in a bearish position for that stock, which is the other side of the trade.
Typically, market makers hedge their positions. In this case, they have to balance their bearish MNDY option position by going long the stock…buying an equivalent amount of MNDY shares. This allows them to maintain an overall neutral portfolio to minimize risk because they earn income from trading fees, not from the actual options themselves.
This sequence of events resulted in increased buying pressure for MNDY shares, especially towards the end of last week. On Thu itself, 2.1M shares were traded, representing about a 3x of average daily volume.
History repeats itself
In a nutshell, MNDY’s stock price stayed elevated as compared to the broader market and it’s high growth peers because of…
low share float, low average daily trading volume, high options trading volume, triple-witching options expiration event, high market volatility and a lower put-to-call ratio resulting in higher stock buying pressure.
This has happened to MNDY during previous triple-witching options expirations as well. Check out their stock chart during the weeks of March 18th and June 17th, 2022.
In today’s markets, share prices are driven by growing retail interest, computerized trading algorithms, meme stock trading mania, global brokerage services and so much more. Sometimes, the stock price is impacted by news about the company or an analyst upgrade or downgrade. During options expiration events, none of this might matter if we are dealing with a low-float stock like Monday.com.
Now, as to whether the stock is a buy or not at it’s current price, I don’t know. I would have to take a look at their latest earnings report to decide.