Salesforce Inc (NYSE:CRM) may represent one of the leading names in cloud-based software applications and a case study in the productivity potential of artificial intelligence. Unfortunately, these attributes alone haven’t exempted CRM stock from the tech sector rout that has cratered several top-tier innovators. Most worrying for Salesforce stakeholders, the company faces a serious test ahead of its fourth-quarter earnings report.
Scheduled for release on Feb. 25 after the closing bell, Wall Street analysts will be looking for earnings per share of $2.69 on revenue of $11.18 billion. In the year-ago quarter, the company posted EPS of $2.78 on revenue of $9.99 billion, beating the consensus EPS target of $2.61 but falling short of the $10.04 billion sales target.
Interestingly, CRM stock really hasn’t been able to gain momentum since that report one year ago. Over the trailing 52 weeks, the security lost nearly 42%. And since the beginning of January of this year, CRM has fallen more than 30%. Despite the wave of red ink, though, the smart money doesn’t seem overly concerned. If anything, the anxiety appears to be concentrated on upside convexity.
One of the most important indicators for retail traders to assess is volatility skew. Definitionally, the skew identifies implied volatility (IV) — or how much the selected stock is expected to move — across the entire strike price spectrum of a given options chain. Since IV is a residual metric derived from actual order flows, the underlying dispersion is based on an empirical estimate (rather than a random, handwaved number).
Essentially, volatility skew tells us what the “insurance premium” is for directional kinesis. Theoretically, if options flow were perfectly neutral, the skew would be flat. However, perceived risk is hardly ever neutral, especially for a name like CRM stock. And the key takeaway for the Feb. 27 weekly option chain is that smart money traders perceive greater risk to the upside than downside.
With the skew being noticeably distorted to the right side (toward higher strike prices), the positioning indicates hedging against a sudden breakout move. While there’s no guarantee that CRM stock would indeed swing higher, such reflexivity is possible given its sustained terrible performance.