DoorDash Inc.’s first day in the options market suggests there may be limits to the IPO euphoria that’s engulfed Wall Street.

Roughly four put contracts were sold for every call after options on the food-delivery company began trading Tuesday. As of 12:45 p.m. in New York, the most popular contracts were out-of-the-money put options with strike prices lower than where the stock is currently trading, according to data compiled by Bloomberg.

The demand for bearish contracts comes after a frenzied week that saw DoorDash jump 86 per cent in its initial public offering, followed by outsize gains for software firm Inc. and home-rental company Airbnb Inc. in their own debuts. Those stunning surges are just the latest in a year-long IPO craze: first-day rallies have been almost three times bigger in 2020 than the average of the past 40 years. However, the swarm into DoorDash puts shows that professional investors who cashed in on the IPO craze are eager to protect those profits, according to Susquehanna’s Chris Murphy.

“Investors who are long the IPO are hedging those significant gains they have already made,” said Murphy, the firm’s co-head of derivatives strategy. “Hedging with puts given the incredible IPO gains from DASH is prudent portfolio management.”

What makes the situation all the more extraordinary is that this rush for protection is happening in a market in which bullish options are exceeding bearish ones by the most in almost a decade.

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But the action so far in DoorDash options is looking wise, given the stock’s performance in the days following its debut. The stock has dropped every day since Wednesday, trimming its rally to 54 per cent and shaving over US$11 billion from its market-capitalization. The same pattern holds for Airbnb, while Inc. climbed for one more day post-IPO before sinking.

A driving force behind the IPO froth is the heavy presence of retail traders, who quickly boosted the likes of Airbnb onto the list of the 100 most popular stocks on the Robinhood app. That appetite among individual investors also fueled record inflows into the Renaissance IPO exchange-traded fund (ticker IPO), even though it doesn’t yet hold Airbnb or Doordash.

“What’s different about IPOs today is how much retail participation we’ve seen,” said Matt Stucky, portfolio manager at Northwestern Mutual Wealth Management Co. “It’s a cautionary tale, I would say, and it’s one where you have to be careful with your risk allocation to that part of the market.”

While retail traders have been busy in the stock market, their tell-tale small orders have yet to show up in DoorDash options, given that spreads are still wide, according to Susquehanna’s Murphy.

“A lot of the small-lot trading we highlight as message board trading is opened and closed in the same day. It’s much harder for these trades to be profitable if you are crossing wide spreads,” Murphy said. “We will eventually see the retail call presence.”