Jefferies Says Buy Dropbox Stock Right Now

DBX options traders are betting on bigger losses

Aug 1, 2018 at 2:20 PM
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Jefferies upgraded Dropbox Inc (NASDAQ:DBX) to "buy" from "hold," saying the stock looks attractive at current levels and potential upside from last year's subscription plans has yet to be priced in. The upbeat outlook isn't being shared by today's option traders, though, with bearish betting detected among near-term contracts.

Taking a closer look, roughly 8,600 puts have changed hands on DBX today -- nearly three times what's typically seen, and volume pacing in the 96th annual percentile -- compared to just 4,800 calls. Most active is the September 27 put, where it looks like new positions are being purchased for a volume-weighted average price of $2.23. If this is the case, breakeven for the put buyers at September options expiration is $24.77 (strike less premium paid).

Today's put-skewed session marks a change of pace among DBX options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 9,386 calls in the last 10 trading days, compared to 6,746 puts.

While some of this activity could be at the hands of vanilla options bulls, it's also possible short sellers have been initiating hedges against any upside risk. There are currently 8.83 million DBX shares sold short -- just shy of the record 8.9 million shares from the July 1 reporting period -- accounting for a whopping 17.2% of Dropbox's available float.

Technically speaking, Dropbox stock spent the bulk of the first three months following its mid-March initial public offering (IPO) churning between $28 and $32, with a couple of pops up to $34 sprinkled in. The shares eventually spiked all the way up to a record $43.50 on June 18 -- rewarding options buyers in the process -- before pulling back to an all-time low of $26.61, which was tagged yesterday, July 31.Today, DBX shares are up 3.1% to trade at $27.60.

dropbox stock chart aug 1

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