Options (CRM): Unusual Trading Activity

| July 3, 2012 | 0 Comments

Options in software services company (CRM) are showing larger than normal activity today.

Don’t forget, even though this is a short day with light trading, stocks are still moving.  Not everyone has taken off yet for the beach to celebrate the Fourth of July holiday it would seem.

And while is moving slightly higher in today’s trade, at least one trader remains a little nervous.

Our tracking system has detected a large amount of trading in CRM’s long-term January 2014 put options.

That’s right, January 2014!

So, with CRM trading at $141.09, what are traders positioning for?

Simple… they’re betting on a big drop in CRM shares by buying put spreads.

For those of you who don’t know, a put spread is a bearish option strategy.  It involves the purchase of a put option and the instantaneous sale of another put option at a lower strike.  This strategy gives the trader an opportunity to make a nice profit while limiting his risk.

In this case, the trader is buying the CRM January 2014 $120 – $85 put spread.

Right out of the gate today this spread was bought 2,100 times for an average price of $12.70.

Sounds expensive, but with so much time until expiration, this $2,667,500 investment can turn into a $4,683,000 gain.  That’s a maximum profit of 176% if CRM trades down to $85 by January 2014.

What’s interesting here is that this trade was made by a very disciplined trader.  He’s not looking for a home run.  Just a double over a long time horizon.

So, what’s behind this bearish put spread?

As most of you know, provides cloud computing and social enterprise solutions to various businesses and industries worldwide.

The company delivers customer relationship management applications through the internet or the cloud.  And its cloud computing services enable customers to connect, engage, sell, service, and collaborate with their customers.

It all comes down to this… the company has its problems. could be squeezed by competition from Oracle (ORCL) and SAP (SAP) for large business customers and Microsoft (MSFT) for small to mid-size business customers.

Also, the market for CRM’s software as a service is young.  In other words, competition is likely to intensify as numerous competitors are entering the space to grab a portion of the potential profits.

But here’s the key…

I think this large put activity is due to analysts’ poor expectations for upcoming earnings and a possible continued weakening in the technology sector.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.