Salesforce Put Buyers Score a Deal During Pullback

Bearish options premiums are cheap compared to calls at the moment

Karee Venema
Mar 21, 2018 at 9:54 AM
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Salesforce.com, Inc. (NYSE:CRM) said it is purchasing San Francisco-based software firm MuleSoft (MULE) in a cash-and-stock deal valued at roughly $6.5 billion, which includes debt. And while most analysts are upbeat over the buyout -- with Canaccord Genuity calling the deal a "good outcome for shareholders" and Barclays boosting its price target on CRM to $140 from $130 -- Salesforce stock has tumbled 3.7% out of the gate to trade at $120.50.

More broadly, today's pullback runs counter to CRM stock's longer-term trajectory. Year-over-year, the shares have surged 48%, and topped out at a record high of $128.87 one week ago today.

Against this backdrop, most analysts are bullish on CRM stock, with 97% of covering brokerages maintaining a "buy" rating. Options traders, on the other hand, have been raising the bearish stakes recently. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.65 ranks in the 74th annual percentile, meaning puts have been bought to open relative to calls at a faster-than-usual clip.

Given CRM's impressive gains over the past year, it's likely that some of this put buying is a result of shareholders initiating an options hedge against any unexpected downside risk. Regardless of the reason, Salesforce put options are pricing in lower-than-usual volatility expectations than their call counterparts. The stock's 30-day implied volatility skew of 1.8% is ranked in the 15th annual percentile.


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