Salesforce.com Options (CRM): Unusual Trading Activity
Options in software services company Salesforce.com (CRM) are showing larger than normal activity today.
Don’t forget, we’re still focusing on heavy activity along with upcoming earnings.
And with CRM reporting earnings next Thursday after the close, option traders are positioning for a rise in the stock price.
Let’s remember, traders must be aware that next Friday is May expiration. So, however traders position for this company, their options expire the very next day.
In other words, there’s no room for error!
Even though the Nasdaq closed down for the past six days, option traders don’t seem to be concerned when it comes to Salesforce.com.
So, with CRM trading at $137.09, how are traders positioning for next week?
Simple… they’re buying call spreads. Specifically the CRM May $145 – May $150 call spread.
Right out of the gate today one option trader bought 2,000 contracts of this spread. He paid an average price of $1.85 a share or a total cost of $370,000 for the position.
Remember, a call spread is an option strategy where one call option is purchased and another is sold at a higher strike price. This is done to reduce the upfront premium, as well as to limit risk.
What’s interesting here is that this is a very disciplined trader. He’s not looking for a home run.
We know this by examining the details of the trade. It’s at-the-money and it’s only a five point spread.
This limits his risk to $1.85 a share. He only needs CRM to rise 7% on earnings and he’ll collect $3.15 a share. A profit of $630,000.
Not bad for a one week holding period!
So, what’s behind this bullish call spread?
As most of you know, Salesforce.com 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.
In addition, Salesforce.com has spent years perfecting its hosted software model. It has a significant lead on potential software rivals such as Oracle (ORCL) and SAP.
It all comes down to this…
I think this large call activity is due to analysts expectations for upcoming earnings and recent strength in the technology sector.
So, as we anxiously await earnings next week, let’s hope options traders are correct and CRM moves higher.
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Category: Unusual Options Trading Activity
