Options traders see big moves on the horizon for a software giant

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One options trader bets on a Salesforce post-earnings jump

A software giant on a shopping spree is set to report earnings on Thursday, and the options market is eyeing a pretty substantial move for the stock.

Salesforce is up just 6% on the year after dropping sharply following its acquisition of Tableau Software for $15.7 billion in June, and then falling 6% in a week in August as trade war turmoil took a toll on the stock.

Another 6% move could be in the cards for Salesforce — that's the long-term average post-earnings move in the stock. But that doesn't tell the whole story, Optimize Advisors President Michael Khouw said Tuesday on CNBC's "Fast Money."

"More recently, over the last eight quarters, those moves have averaged about 3%. Right now, the options market is implying a move of about 5%," said Khouw.

So, with the options market implying a fairly large move for the stock, one intrepid trader bet on a move to the upside in the short term.

"One of trades that we did see today was a buyer of the 150/155-call spread," said Khouw. "That's someone who's making a bullish bet that the stock is going to be higher by the end of the week.

"That trade breaks even up 3.6%, but will pay 3-to-1 if the stock rises 6% or more."

Interestingly enough, that wasn't the only big trade in Salesforce. One trader laid out more than $1 million in premium in a bet that signaled some serious uncertainty about the future of this software giant.

"One of the other interesting things we saw was a sale of 1,200 of the November 120/175 strangles — that's selling both the put and the call — and using the proceeds to finance the purchase of a January 2021 130 put," said Khouw.

The trader who made this bet is likely hedging a long position in the stock, and buying some insurance in case market conditions go down the tubes. After all, the software industry is vulnerable to trade war turmoil.

Another interesting aspect of this options trade is that 120-strike price. Since the trader bought these contracts for $9.65 in premium, the breakeven price would be below Salesforce's 52-week low. The stock last hit that price in the market lows of February 2018.

Salesforce was trading 1.7% higher on Wednesday.

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