Investors are scrambling to expand the realm of the sorts of industries, companies, products and services that might fit the narrative of increased infrastructure spending. While tech stocks largely under-performed the initial post election gains (Showing FANGs), they have played catch up in a big way in 2017, and are actually leading the charge to new highs in almost every major U.S. equity index. While skeptics might say “let’s not go to far afield from industrials, energy and materials” it makes sense to consider the fact that increased economic activity from deficit spending on infrastructure will lead many companies of all sorts of industries to upgrade their tech solutions to manage activities in the cloudy, mobile tech world we live in…
One such company that might benefit from such a tech upgrade cycle might be Salesforce.com (CRM), the leading SaaS provider. I know, I know, that all sounds a bit too giddy, but don’t shoot the messenger, the stock’s 14% year to date gains suggest others are buying into this thesis, and at least one options trader today appears to be rolling out and up a prior bullish view. When the stock was $78.37, a trader sold to close 10,000 March 80 calls at $2.67, collecting $2.67 million in premium and used the proceeds to buy to open 20,000 of the May 90 calls for $1.32, or $2.64 million in premium. This trade now breaks-even at $91.32, up 16% from the trading level at a new all time high, and well above the prior all time high just below $85:
I would add one caveat before you take this as a clear cut bullish bet by a large trader. The May 90 calls have only a 21 delta, meaning they have less than a 21% probability of being in the money on May expiration, not exactly a high probability bet that the stock is up 16% in 4 months so it’s unclear if these are an outright bullish lotto ticket or against an underlying position.
A more realistic play for those looking to position for new highs would be to play for a move to 90, not above. For instance, the May 82.5/90 call spread is $2.00 and offers up to 5.50 in potential gains if CRM make a run to $90. That’s slightly more premium than the large trade detailed above but it has much higher probabilities of making money.