Earlier today there was an options trade in Salesforce.com (CRM) that got me looking at the stock. First things first, the trade was fairly inconsequential, despite being a purchase of 12,000 March 95 calls for 7 cents, when the stock was $65.38, or about 45% out of the money. This trade was marked closing versus 21,000 contracts of open interest, so this looks like a holder who had overwritten some shares was buying back the calls to close.
You may be asking yourself why on earth would anyone pay $84,000 in premium to close out a short call position that the options market is saying has less than a 2% chance of being in the money in less than two months? The answer is simple, discipline. CRM is a stock that has been rumored in the past to be a take-out candidate, and in fact the rumors last spring suggested that the company had rebuffed an offer in the $80s. Obviously the stock is much lower now, but if this was in fact an overwrite to begin with, then the call sale has done its job, and there is little reason to leave on short options with a 2 delta.
As a rule of thumb, most options traders start to consider covering short options positions (depending on what they are against) when they have a delta of less than 10. There are plenty of things that can come into play, like time, scheduled events, etc.
I would add one last thing on CRM. This is a stock, much like AMZN and NFLX over the last few years that has defied gravity, despite eye-popping valuation. But the stock much like NFLX, has quietly fallen into bear market territory since its all time highs made in late November now down 22% from those levels, and today making a matched low with its August low:
On a longer term basis, CRM is testing the uptrend that has been in place since late 2011, if it were to bounce this would be a great spot, but if it doesn’t, there is little support until $60:
CRM has not set its reporting date, but it should fall in the last week of February. We’ll be keeping an eye on it.