CrowdStrike Sees Unusual Call Option Surge: What’s Next?

Key Points

• CrowdStrike stock has recently picked up unusual call option buyers, who are betting alongside Wall Street and institutions for a new rally during earnings. 
• New price targets point to $400, which is the same target these options traders have chosen, making it a stronger level to consider.
• Markets are willing to pay a premium for the stock today, signaling even more bullishness toward the company.

When it comes to gaining exposure to a stock’s price move in the future, most investors think of only buying the stock to enjoy the ride. However, there are more ways than one. Through derivative instruments, like options, investors can gain access to leverage while limiting their losses to amplify potential gains if they land on the right side of a stock’s price swing.

However, there’s one caveat to owning options, and that is the fact that they expire worthless if the stock doesn’t make the implied move in time. Knowing that the stakes are higher for options traders, investors might place a lot more weight on information regarding unusual call option activity on a specific name. Today, such activity is found within the technology sector.

A few aggressive traders decided to buy call options, which means to bet in favor of the stock, for shares of CrowdStrike Holdings Inc. NASDAQ: CRWD with a few catalysts in mind to really move the stock. One of these catalysts is the company’s upcoming earnings announcement, due to be released later this month. Today, investors will be able to break down what this unusual call option buying activity means and whether CrowdStrike has room to deliver a rally.

Bullish Call Options on CrowdStrike Stock Signal Growing Investor Confidence

According to the NASDAQ report, which spotted unusual options trading activity, 12 bearish traders bought up to $706,199 worth of options on CrowdStrike stock. To get paid, these traders needed to see the stock come down from where it trades today; however, they were significantly outnumbered by the bulls on the other side.

For call options, up to 82 buyers accumulated a position of up to $4.3 million, betting on a rally for CrowdStrike. Investors need to remember that, due to the expiration nature of options, the upmove needs to happen soon, or these traders risk losing their entire investment.

The bulls also have a specific price target in mind based on the contracts that were bought. The upper range of the targets was $400 a share in CrowdStrike stock, and these were the contracts with the most volume. To prove these traders right, the stock would need to rally by as much as 33.6% from where it trades today.

Considering that the stock has yet to recover from its recent sell-off caused by outages affecting some of CrowdStrike’s biggest customers, investors could safely assume that the stock does have enough room to stage a comeback rally that could deliver a double-digit upside.

Knowing that this is what could await CrowdStrike stock in the coming weeks, some institutional buyers decided to come in early and buy some exposure in the stock alongside these call option traders. Specifically, those at Assenagon Asset Management after boosting their CrowdStrike holdings by 248.6% as of October 2024.

Today, this addition would net their investment up to $146.2 million. The bullish evidence is surely stacking up for CrowdStrike’s future. However, there is still one more measure investors should check before making an educated decision to buy the stock ahead of the coming event, and that has to do with where Wall Street and markets see the stock headed.

Wall Street's Take on CrowdStrike Stock: Could a Rally Be on the Horizon?

Analyst sentiment can guide investors as to the reality of a particular stock. Regarding CrowdStrike, the consensus is that the stock price could go as high as $328.7 a share, or roughly 9.8% above its current level. However, the outliers are more critical for investors in this case.

Analysts at JMP Securities see the potential for CrowdStrike stock to reach a high of $400 a share, which is not only where the stock used to trade before the outage accident but also the strike price chosen by these new call option traders.

Coincidence is not something to be shrugged over in the stock market. This sends a very clear—and strong—message to investors considering where their capital could see the next rally. Other measures would solidify the view of traders, analysts, and institutional investors.

Through valuation multiples, investors can gauge whether markets are willing to overpay for a particular stock, which typically means they have a reasonable justification. On a price-to-earnings (P/E) basis, CrowdStrike stock trades at a 433.8x valuation, significantly higher than the computer sector’s average of 264.3x.

The same can be said about the company’s price-to-book (P/B) multiple of 31.0x, which calls for a similar premium above the sector’s average of only 7.0x. The stars seem to be aligned for a coming CrowdStrike stock rally; it is only a matter of time.