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Bullish Betting Surges On, inc. (CRM)

The May 55 call is far and away, inc.'s most active strike

by 5/6/2014 12:32 PM
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Option bulls are stampeding toward, inc. (NYSE:CRM) this afternoon. So far, 29,000 calls have changed hands -- a four-fold mark-up to the average intraday clip, and more than six times the number of puts traded. Against this elevated demand -- particularly at short-term strikes -- the stock's 30-day at-the-money implied volatility (IV) is 1.8% higher at 45.9%.

Most active by a mile is CRM's May 55 call, where nearly 19,000 contracts -- including a trio of large blocks -- are on the tape. Roughly two-thirds have been exchanged on the ask side, IV is up by about 4 percentage points, and open interest at the strike consists of fewer than 5,500 contracts. All things considered, it's safe to assume fresh bullish bets are being initiated here.

Long story short, the call buyers expect shares of the cloud computing issue to rally over the next couple of weeks. Specifically, the traders want the stock to topple the 55 strike by the closing bell on Friday, May 16, when front-month options expire. (However, because nearly 8% of CRM's stock is sold short, a portion of today's call buying may be the result of short sellers hedging their bets.) Currently, the equity is 1.5% lower at $52.85, meaning a 4.1% advance would be necessary to bring the option into the money. If that fails to occur within the contract's lifetime, however, the most the traders will part with is the initial premium paid.

Today's penchant for long calls over puts in CRM's options pits is a bit out of the ordinary. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has racked up a 50-day put/call volume ratio of 0.73, which ranks in the top quartile of its annual range. In other words, traders have scooped up long CRM puts (relative to calls) at a faster-than-usual pace of late.

Looking ahead,, inc. (NYSE:CRM) is slated to report first-quarter earnings after the close on Tuesday, May 20 -- two sessions after May options expire. Historically, the company has matched or exceeded analysts' consensus bottom-line estimate in each of the last eight quarters, resulting in an average single-week gain of 2.2%. The Street expects per-share earnings of 10 cents from CRM, on par with its year-ago results.


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