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Earnings Preview: salesforce.com, inc. (CRM)

salesforce.com, inc. (NYSE:CRM) is set to report earnings tomorrow, and despite its history of post-earnings wins, options bears are coming out full force to bet on a swing-and-a-miss for the cloud services stock

Aug 30, 2016 at 1:07 PM
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Cloud computing specialist salesforce.com, inc. (NYSE:CRM) is set to report earnings tomorrow evening, after delaying the release by two days due to "a scheduling conflict." Despite its history of post-earnings wins, options bears are coming out full force to bet on a swing-and-a-miss for the cloud services stock. 

CRM is currently down 0.3% at $79.70. After the aforementioned earnings delay earlier this month, the stock's retreat was limited by its 200-day moving average, which has provided support since late March. From a longer-term perspective, the stock is up over 50% since hitting an annual low of $52.60 in February, and even touched a record high of $84.48 in late May. However, CRM's upward momentum has consistently stalled in the $82-$84 region, which has capped several rallies since late 2015.

Action in the option pits has grown increasingly bearish of late, with CRM's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 1.20 sitting in the 94th percentile of its annual range. CRM's Schaeffer's put/call open interest ratio (SOIR) echoes this, sitting at 0.90, which is higher than just 2% of all other readings from the past year. In other words, near-term traders have rarely been more put-heavy during the past year.

According to Trade-Alert, CRM's put open interest currently sits in the 88th percentile of its annual range. The stock's weekly 9/2 73.50 put is the second-most populated strike, and buyers of the puts could be betting on a drop below $73.50 before expiration this Friday. Meanwhile, CRM's closer-to-the-money September 77.50 put has the highest open interest in the front-month series.

However, bearish buyers should beware, since CRM has typically moved upwards after releasing earnings over the past two years, with seven of its last eight earnings reports followed by positive price action. CRM has averaged a post-earnings swing of 6.1% in either direction, with the market currently pricing in a single-day, post-earnings move of 9.1% this time around. What's more, salesforce.com, inc.'s Schaeffer's Volatility Scorecard (SVS) sits at a relatively low 15, indicating CRM has tended to fall short of option traders' volatility expectations during the past year.


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