Is, inc. (CRM) Poised to Pop or Pull Back?

Analysts and options traders seem to have high hopes for, inc. (NYSE:CRM)

Aug 2, 2016 at 10:22 AM
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Cloud concern, inc. (NYSE:CRM) is trading 1.3% lower this morning, in light of news the tech company is buying word processing application Quip for approximately $750 million. On a long-term basis, CRM has outperformed on the charts, nearly doubling in value since the end of 2012. The stock hit an all-time high of $84.48 in late May, and has mostly been consolidating near this level ever since, with its year-to-date breakeven mark sitting just underneath. So, can CRM break out from this consolidation pattern to notch new highs, or should traders expect a short-term pullback?

Starting with the analyst community, bullish expectations are sky-high for CRM. There are currently 29 brokerage firms covering the stock, and 27 of them say it's a "strong buy," and zero recommend selling it. What's more, the average 12-month price target among this bunch is $96.70 -- a 21% premium to CRM's current price of $79.96, and territory never before explored. While the stock's technical performance warrants such bullish expectations, any setback could spark more bearish notes

On the surface, this upbeat outlook has been shared by options traders. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals call buying has more than doubled put buying during the last 10 weeks. The resulting call/put volume ratio of 2.17 ranks above three-fourths of the past year's readings, pointing toward a stronger-than-usual preference for bullish bets over bearish. 

Breaking it down further, peak call open interest resides at the front-month August 85 strike. However, information from the major options exchanges indicates there's been a steady mix of sell- and buy-to-open activity at this strike. In other words, some traders are betting on CRM topping $85 by the time the options expire at the close on Friday, Aug. 19, while others are betting on this level acting as resistance. 

This appears to be part of a broader theme in CRM's options pits. By the numbers, 15,161 CRM calls have been sold to open during the past 50 sessions at the ISE, CBOE, and PHLX, compared to 14,847 that have been bought to open. According to our Schaeffer's Volatility Index (SVI), though, it appears to be a better time to buy short-term premium than to sell. Specifically, this reading of 20% is just 1 percentage point from an annual low, meaning the options market is pricing in historically low volatility expectations at the moment.

Anyone planning to speculate on, inc. (NYSE:CRM) should take note of its earnings release, scheduled to hit the evening of Monday, Aug. 29. Looking back, CRM shares have moved higher in the session after earnings in an impressive six straight quarters. So, while the overwhelmingly bullish expectations for CRM leave it vulnerable to potential headwinds -- especially from the analyst community -- the stock's strong performance on the charts and historical post-earnings success suggest losses are far from guaranteed.

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