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Salesforce.com, inc. (NYSE:CRM - 169.07) has surrendered about 3.2% today, despite scoring a price-target hike to $210 from $180 at Morgan Stanley ahead of the open. This drop hasn't gone unnoticed by options bears, as roughly 25,000 puts have crossed the tape so far -- about 11 times the security's expected intraday volume. By contrast, approximately 10,000 calls have been exchanged.
The clear front-runner has been the January 2013 165-strike put, where north of 7,000 contracts have changed hands -- a large portion of them at the ask price, pointing to buyer-fueled activity. These out-of-the-money puts traded at a volume-weighted average price (VWAP) of $0.92. Today's volume already exceeds existing open interest levels, while implied volatility was last seen 2.4 percentage points higher -- both of which support our theory that new positions are being added here. By purchasing these puts to open, traders are expecting the shares to sink below breakeven at $164.08 (strike price less the VWAP) by this Friday's close, when front-month options expire. This reflects a 3% drop from the stock's current perch.
This predilection for puts over calls is keeping with CRM's current trend. The equity's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.53, confirming puts easily outstrip calls among options scheduled to expire in the next three months. This ratio is just 8 percentage points shy of a bearish annual peak, meaning short-term traders have rarely been more put-heavy toward the security during the past year.
Despite this pessimism in the options pits, CRM is no technical slouch. Today's intraday decline notwithstanding, the cloud computing firm boasts a year-over-year gain of nearly 69%, and has outperformed the broader S&P 500 Index (SPX) by more than 14 percentage points during the last three months. Still, if the stock fails to retreat below the aforementioned breakeven level over the next few days, the most today's put buyers stand to lose is the initial premium paid.