A Look At Some Unusually Large Options Trades In Dropbox

Dropbox Inc DBX hit the ground running following its 2018 IPO, with the stock price soaring from its IPO price of $21 to above $43 per share last summer. A year later, the stock is back trading under $23, but some large bullish trades in the options market on Wednesday suggest the stock’s six-month consolidation period may be over.

The Trades

On Wednesday morning, Benzinga Pro subscribers received several options alerts related to Dropbox.

Between 10:01 a.m. and 11:13 a.m., there were four large purchases of Dropbox call options with a $23 strike price expiring on July 19 at ask prices ranging from $1.041 to $1.151. All together, the buyer(s) purchased 4,139 July 19 call options, a total bullish bet of more than $400,000 at a break-even price of at least $24.041.

There were also three large bearish Dropbox trades mixed in on Wednesday morning.

One trader sold 863 Dropbox call options at a $22 strike price that expire on June 21. The calls were sold at the bid price of $1 and represent an $86,300 bearish bet.

Another two trades went through within 30 seconds of each other and included a total sale of 2,000 Dropbox call options at a $23 strike price that expire on July 19. The calls were sold at the bid price of between $1.10 and $1.099 and represent a roughly $220,000 bearish bet.

After all was said and done, the trading action represented a net bullish bet of more than $90,000.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small sizes of the Dropbox options trades, it’s unlikely they are hedges.

Buy The Dip?

Dropbox options traders seemed somewhat bullish on Wednesday, but the relatively small size and mixed nature of the orders suggest they aren’t particularly convicted in their thesis.

Assuming all seven trades were made by one or two large traders, it appears as if one bullish Dropbox June call position was rolled over into July. At the same time, one or more trader adjusted a July $23 call position by executing several buys and sells at different bid and ask prices throughout the morning.

Mixed Dropbox option trading is a reflection of the fact that shares of the tech stock remain steeply priced at a 2019 PE ratio of more than 50. However, the company has consistently generated impressive growth above 20 percent. After a year of mostly sideways trading, Dropbox bulls are hoping the stock is finally starting to grow into its valuation and produce some significant gains for investors.

Dropbox's stock traded at $22.75 at time of publication.

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