Salesforce Option Trader Bets $1.5M On Software Stock Heading Higher

Salesforce.com, inc. CRM shares are up 21.7% in the past year. The cloud-based customer relationship management giant has been one of the best large-cap growth stocks in the market in recent years, and at least one large option trader is expecting more of the same from the stock over the next three months.

The Salesforce Trades

On Thursday morning, Benzinga Pro subscribers received two option alerts related to unusually large Salesforce trades:

• At 9:51 a.m., a trader bought 1,320 Salesforce call options with a $190 strike price expiring Sept. 18 at the ask price of $11.35. The trade represented a more than $1.49-million bullish bet.
• At 10:57 a.m, a trader bought 400 Salesforce put options with a $180 strike price expiring on July 17 at the ask price of $4. The trade represented a $160,000 bearish bet.

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 of Thursday’s Salesforce option trades, they could certainly be institutional hedging.

Soaring Software Stocks

Thursday’s large Salesforce option trades come after analysts from Goldman Sachs and Jefferies reiterated bullish ratings on Salesforce and raised their price targets earlier this week.

Goldman Sachs analyst Heather Bellini raised her target from $204 to $220 and said the combination of expanding software earnings multiples, lower interest rates and falling equity risk premiums should help propel Salesforce to new highs. Software stocks have been relatively strong performers during the COVID-19 downturn given they have endured less disruption from the economic shutdown than companies reliant on on-site business.

Jefferies analyst Brent Thill also raised his target from $205 to $220 on Monday.

“We also believe covid-19 has been [an] accelerator driving more businesses to the cloud, which should benefit CRM,” Thill said.

Benzinga’s Take

The fact that the large call buyer chose a September expiration date suggests the bullish thesis isn’t simply a bet that Salesforce’s short-term bullish momentum will continue in the near-term. The September calls have a break-even price of $201.35, suggesting at least another 7.9% in upside over the next three months.

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

Related Links:

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How To Read And Trade An Option Alert

Photo courtesy of Salesforce.