By Jud Pyle, CFA, chief investment strategist for the Options News Network
shares are up on the day following positive notes from Deutsche Bank on Friday, and options action during afternoon trading suggests at least one investor anticipates the good news to buoy the stock to new highs throughout the later-term.
CRM is currently trading at $80.62, up more than 1%, or roughly 85 cents, on the day. The stock is just cents away from its 52-week high of $81.23. The directory software company has not announced its earnings release date, but the market anticipates the report around May 20 and analysts estimate earnings of 30 cents a share. An investor traded an out-of-the-money ratio call spread calling for further upside throughout the next few months.
At 2:16 p.m. EST, an investor bought the August 85-100 call one-by-two spread for a net debit of $2.90 per spread. The investor bought 13,000 August 85 calls for $5 per contract and simultaneously sold twice the number of August 100-strike calls for $1.05 per contract. Investors who bought this spread will make a maximum profit if the stock trades right at $100. If the stock stays below $87.90 or climbs higher than $112.10, investors will begin to lose money. If the stock is below $85, this spread caps any losses at $3,770,000, but if the stock soars higher than the upper-breakeven, the investor could theoretically incur unlimited losses.
The lower-strike 85 calls have an implied volatility of 35% and the higher-strike 100 calls have an implied volatility of 31% compared to the stock's 30-day historical volatility of 22%. The options action we saw today suggests one investor expects the stock to rise no more than 25% higher than its current level.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."