Dropbox has been one of the hottest tech stock IPOs this year, but some traders are betting the big rally could be coming to an end.
Shares of the cloud services provider were down nearly 6 percent on Tuesday afternoon, but have been on a tear since going public. Despite the dip, Dropbox is still up more than 39 percent since making its market debut in March.
However, according to Dan Nathan of RiskReversal.com, the options market is implying the cloud stock has gone too far, too fast.
On Monday, there was a surge of activity in the name, with options trading at more than three times the average daily volume. Moreover, Nathan highlighted that traders seemed to be closing out bullish bets of the June 22 weekly 40-calls.
“So these were traders that started to buy week out calls and now with a good profit in such a short period of time they’re starting to close out of them,” he said Monday on CNBC’s “Fast Money.”
Shares of Dropbox closed up 6 percent Monday and have rallied more than 28 percent in just the last week.
FactSet analysts currently have Dropbox at an average buy rating, but an average price target of $32.71 – that’s more than 20 percent below its current levels.
Shares of Dropbox were lower Tuesday afternoon at around $40.
Source: Tech CNBC
Traders bet one soaring tech stock is about to lose steam