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Here's How Large Salesforce Option Traders Are Positioning Ahead Of Earnings

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Here's How Large Salesforce Option Traders Are Positioning Ahead Of Earnings

Salesforce.com, inc. (NYSE: CRM) shares are up 32.4% in the past six months on optimism about the company’s cloud-based customer relationship management services software.

With Salesforce’s earnings report now just two weeks away, the tech stock had the attention of at least one large option trader on Tuesday morning.

The Trades

On Tuesday, Benzinga Pro subscribers received four option alerts related to unusually large Salesforce option trades:

  • At 10:01 a.m. ET, a trader bought 932 Salesforce put options with a $180 strike price expiring on Feb. 21. The contracts were purchased near the ask price at 55 cents and represented a $51,260 bearish bet.
  • Within seconds, a trader bought 532 of the same Salesforce put options with a $180 strike price expiring on Feb. 21. The contracts were purchased near the ask price at 58 cents and represented a $30,856 bearish bet.
  • Less than a minute later, a trader sold 500 Salesforce put options with a $180 strike price expiring on Feb. 21. The contracts were sold near the bid price at 59 cents and represented a $29,500 bullish bet.
  • Within seconds, a trader sold 2,963 of the same Salesforce put options with a $180 strike price expiring on Feb. 21. The contracts were sold near the bid price of 59 cents and represented a $174,817 bullish bet.

All together, the four trades represented a net bullish bet of $122,201.

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 large 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 small sizes of the biggest Salesforce option trades, it’s unlikely they represent institutional hedging.

Earnings Sentiment Play?

There are several takeaways from Tuesday morning’s Salesforce option trading activity. First and potentially most importantly, all the contracts traded expire the Friday before Salesforce reports earnings, suggesting they are not related to a thesis on the earnings report itself. Instead, the position taken is more likely a trade on Salesforce market sentiment heading into earnings.

Second, given all four trades took place within roughly a minute, there’s a good chance they were all made by the same trader.

Finally, given the net result of the trades was a large sale of Salesforce put options that are relatively far out-of-the-money ahead of earnings, they may simply represent a trader abandoning a bearish thesis rather than making a big bullish bet on the stock.

Bullish sentiment among StockTwits messages mentioning Salesforce has jumped from 55.5% on Dec. 29 to as high as 96.6% on Tuesday, its highest level in more than three months.

 

Benzinga’s Take

If Tuesday’s trades represent a Salesforce trader abandoning a bearish position ahead of earnings, it doesn’t appear as if that trader is replacing it with a large bullish position, at least not yet. The trader also doesn’t appear to be rotating his bearish stake in $180 puts to a later date or to a $190 contract that is closer to being in-the-money.

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

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