Dropbox Stock Gets Bear Note Before Earnings

DBX call options have been popular

by Josh Selway

Published on Aug 7, 2019 at 10:37 AM

Dropbox Inc (NASDAQ:DBX) just received a bear note a day before the company is expected to report earnings. Bernstein began coverage on the software stock with an "underperform" designation and $19 price target, saying that almost all metrics show a decline in the company's business and that competition is tough in the file-storage space.
 
This rating goes against the general opinion on the Street, as seven of the nine analysts in coverage have "buy" or "strong buy" ratings on the equity. In similar fashion, the average 12-month price target is $32.27. Options traders have also maintained a bullish view before earnings, with data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) coming in at 9.20. So not only have long calls outpaced long puts by more than 9-to-1, but this reading ranks in the 84th annual percentile.
 
To be more specific, peak open interest in the front-month August series resides at the 28 call, while the 27 call is also home to high open interest levels. On the put side, the August 24 strike has been a favorite among speculators. With Dropbox scheduled to release earnings after the close tomorrow, Aug. 8, the options market is pricing in a giant 13.7% swing, which is way above the average move of 5% from the company's first five earnings reports.
 
Looking closer at the charts, DBX shares have given back 3.4% this morning to trade at $20.96. While this just extends recent technical weakness for the security, the $21 region has acted as an area of support for the stock in 2019, and the 14-day Relative Strength Index (RSI) of 24 was already sitting in oversold territory.

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