Pouring Oil on Fire: CRM Open Interest Analysis
Salesforce, the new addition to the DJ index, in the next week, topped its earnings expectations and raised its revenue outlook.
The stock is up 25% today:
Yesterday's Calls prices shows big gains, for example Call220 for Aug28 that cost 3.8$ at the end of the day yesterday, is worth now 51$, which is 13.4X profits.
This is what winning the lottery in the markets looks like:
So what can we learn from the Open Interest on CRM?
We see that strike 220 had 65K OI, so as it went through the strike 6.5M shares needed to cover (1.4B$), and then as it went through the 230 strike with 50K OI, another 5M shares needed to cover(1.1B$).
Add to that the fact that it will be joining the DJ index on Friday close, you get a rocket move today.
Open Interest gives you an idea of what the big money players are watching, and where the critical states are. Sometimes, price is pinned to the strike, and sometimes (especially if there is a good story behind it) , the price can cross several strikes in big sharp move.