New bull market in software stocks hinges on this report

Options traders are convinced the “SaaS-pocalypse” is over. Whether that’s true will likely depend on the market’s reaction to Salesforce earnings after the bell Wednesday.

Volume ratios in options trading on the iShares Expanded Tech-Software Sector ETF (IGV) have been increasingly bullish throughout this month, including on Tuesday — when more than twice as many calls traded as puts, with a heavy bias toward call-buying. By comparison, five times more puts traded in the VanEck Semiconductor ETF (SMH) than calls.

Cloud giant Salesforce, down more than 50% from its all-time highs more than 18 months ago, will likely have an outsized impact on the group, which is now up more than 25% since its low in April — a technical definition for a new bull market.

More options contracts traded in Salesforce alone than in the IGV on Tuesday, and total premium exchanged was almost three times more, with 61% of premium in Salesforce traded around call contracts, according to SpotGamma data. More than 10,600 calls were bought, compared to just over 4,100 puts.

Options traders are expecting an abnormally big move for the stock. Implied volatility is pricing in a 7.8% swing, more than twice the realized move after the past four earnings reports, according to Cboe LiveVol data.

Many of the biggest trades by dollar amount were done in the June 18 expiry, but at least one trader in Salesforce has short-term high hopes: They spent $650,000 buying 2,000 of the 195-strike calls expiring Friday, looking for an almost exactly 10% move into the weekend.