Shares of salesforce.com, inc. CRM are down 5.7% in the past six months after a three-year run in which the stock more than doubled.
Salesforce shares appear to be taking a breather now that the stock’s PE ratio has reached the triple-digits, but one large option trader made a big bet on Tuesday that the Salesforce rally will continue sometime in the next nine months.
The Trade
On Tuesday, Benzinga Pro subscribers received an option alerts related to an unusually large Salesforce option trade.
At 11:39 a.m. ET, a trader bought 1,000 Salesforce call options with a $170 strike price expiring on June 19, 2020. The contracts were purchased at the ask price of $9.051 and represented a $905,100 bet that Salesforce shares have more than 17% upside between now and June of next year.
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 the Salesforce option trade, there’s certainly a possibility it could be a hedge on a large short position in Salesforce stock.
More All-Time Highs Ahead?
Salesforce’s multi-year rally and stretched valuation has been fueled by its consistently impressive growth numbers. Unfortunately, those growth numbers haven’t continued to drive additional upside in recent months.
Last quarter, Salesforce reported 22% revenue growth and raised its full-year guidance, yet the share price showed little reaction. One factor that may be weighing on the stock is its 6.4% profit margins over the past year, which is relatively low compared to some of its cloud services peers.
Benzinga’s Take
Salesforce doesn’t have any clear near-term catalysts in the near future, but it’s telling that Tuesday’s call buyer chose a window of nine months. The trader may not necessarily know when the Salesforce rally will resume, but he or she is betting that eventually Salesforce will be able to grow its way out of its recent rut in the next three quarters.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
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