Freedom proposed an options idea on Datadog shares with a potential return of 90.5%

Freedom analysts presented an investment idea for Datadog (DDOG) shares to rise after a sharp decline in the company’s quote. The strategy involves buying an option that gives the right to purchase shares at a pre-set price of $240 until October 16, 2026. The expected return of the idea is 90.5%, while the maximum possible loss is limited to the $2100 paid when opening the position.

More interesting content about companies — in the new Investment Review No. 351 from Freedom analysts.

Datadog is an American technology company that develops a cloud platform for monitoring and protecting information systems. Its services enable companies to monitor the operation of applications, servers, and cloud infrastructure in real time, identify technical failures, and detect security threats. 

Why Freedom expects Datadog shares to rebound

The investment idea emerged after a sharp drop in Datadog shares on August 6: after the publication of the second-quarter report, the stock lost about 17%. At the same time, the company’s results exceeded market expectations: revenue rose 36% year over year to $1.12 billion versus a forecast of $1.08 billion, and adjusted earnings came in at $0.65 per share versus the expected $0.58. Investors were concerned by guidance for the next periods and the expected reduction in service usage by Datadog’s largest client from the artificial intelligence sector. For the third quarter, the company forecast revenue of about $1.14 billion, and for all of 2026 — about $4.46 billion.

Freedom analysts believe the market reaction may have been excessive: although revenue and profit growth rates have slowed, the company continues to develop artificial intelligence solutions and maintains a strong position in the cloud software market.

As an additional argument in favor of a rebound in the quote, analysts cite a possible improvement in sentiment in the U.S. stock market in the coming weeks. At the same time, risks remain: further business slowdown, downward revisions to industry forecasts, and deterioration in the technology sector could put pressure on the shares.

How Freedom’s options idea on Datadog shares is structured

The strategy involves buying a call option on Datadog shares with a strike price of $240 and an expiration date of October 16, 2026. For this right, the investor pays $21 per share. Since one standard exchange-traded contract is for 100 shares, $2100 is required to open the position.

Freedom analysts plan to sell the purchased option if its value rises from $21 to $40. In that case, profit would be $1900 per contract, and the return would be about 90.5%.

The maximum possible loss is capped in advance at $2100. It would occur if, by the option’s expiration date, Datadog shares are at $240 or below and the contract loses value.

For the strategy to start generating profit by the contract’s expiration date, Datadog shares must rise above $261. This level is the sum of the $240 strike price and the $21 paid for the option.

At the same time, analysts recommend not necessarily waiting until October 16. If the option’s price reaches $40 earlier, they suggest closing the position and locking in the result.

Freedom’s options ideas previously delivered returns of up to 9.4%

Previously, Freedom closed four options trades with positive results. The highest return came from the strategy on Bank of America (BAC) shares — 9.4%. The trade on Morgan Stanley (MS) shares delivered 7.6%, on Procter & Gamble (PG) — 5.1%, and on Netflix (NFLX) — 4.7%. All four positions were closed at a profit.

In July, Freedom also proposed an options idea for Morgan Stanley (MS) shares to rise. The strategy provided the right to buy the bank’s shares at $230 until August 21, 2026. Opening one contract required $825, expected profit was $765, and the potential return was 92.7%. The main arguments were the bank’s strong quarterly results, a dividend increase, and a $20 billion share buyback program.

Not an individual investment recommendation.