Large Salesforce Option Traders Betting On A Bullish Bounce

Shares of salesforce.com, inc. CRM are down 9.3% in the past three months ahead of the company’s third-quarter earnings report expected out in late November. Despite concerns about the cloud giant’s valuation, some large option traders are making some unusually large bullish bets on Salesforce.

The Trades

On Friday, Benzinga Pro subscribers received five option alerts related to unusually large trades of Salesforce options. The four largest trades were all bullish in nature:

• At 9:41 a.m., a trader bought 1,354 Salesforce call options with an $150 strike price expiring on Dec. 20 near the ask price at $5.449. The trade represented an $737,794 bullish bet.
• Less than a minute later, likely the same trader bought another 1,496 of the same Salesforce call options with an $150 strike price expiring on Dec. 20 near the ask price at $5.463 cents. The trade represented a $817,264 bullish bet.
• At 10:55 a.m., a trader sold 1,000 Salesforce put options with an $150 strike price expiring on Nov. 15 near the bid price at $8.094. The trade represented an $809,400 bullish bet.
• At 11:17 a.m., a trader sold 507 more Salesforce put options with a $150 strike price expiring in Nov. 15 near the bid price at $7.591. The trade represented an $403,115 bullish bet.

The four largest Salesforce option trades on Friday represented a combined bullish bet of more than $2.76 million. The December calls purchased have break-even prices of above $155.45, suggesting more than 8.4% upside for Salesforce shares over the next two months.

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 large size and timing of the largest Salesforce trades, they could easily be institutional hedges.

Bottom In?

Salesforce shares have been trending lower since hitting new all-time highs at around $167 in early 2019. Given there was seemingly no major news about the company this week, Friday’s large bullish option trades may simply be a bet the hot start to third-quarter earnings season for U.S. companies suggests big numbers are coming from Salesforce next month.

Last quarter, Salesforce shares initially popped after the company reported earnings and revenue beats, including 22% sales growth. The rally didn’t last as investors took profits on the cloud leader.

November’s earnings report will be the first full quarter since Salesforce closed its $15.3 billion buyout of Tableau Software in August. Bulls appear to be shrugging off concerns over the stocks valuation and betting growth numbers will carry the stock higher. Salesforce currently trades at a forward earnings multiple of 47.2.

Benzinga’s Take

The break-even price of the call options purchased on Friday suggests upside for Salesforce stock, but it wouldn’t necessarily mean new all-time highs. Salesforce bulls first need the stock to break out of its bearish technical pattern of lower highs and lower lows that has been in place since late April, which would mean a sustained push above the $155 level that held the stock down in August and September.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Large Square Option Trader Makes $1.9M Bet On Earnings Beat

How To Read And Trade An Options Alert

Photo courtesy of Salesforce.