Unusually Heavy Volume in Snowflake Call Options Ahead of Earnings Today

Snowflake Inc. (SNOW) call options saw unusually heavy volume today at a strike price higher than today's price and expiring in 9 days. That could signal either bullish sentiment or existing investors selling covered calls for extra income.

SNOW is trading at $306.92 in midday trading, down about 4% on the day. It's off from a recent peak of $337.38 on Aug. 13, but well up from a recent trough of $265.13 on July 23.

Is this going to be another case of "sell on the news?" If so, that could account for the unusually out-of-the-money (OTM) call option selling today.

That can be seen in today's Barchart's Unusual Stock Options Activity Report. It shows that over 8,500 call options have traded at the $360 strike price expiring on Sept. 11, or 9 days from now.

This heavy volume in SNOW call options is almost 19x the prior number of call options outstanding for Sept. 11 at $360.00.

Moreover, that strike price, almost 15% above today's price, is even higher than the stock's recent closing peak at $337.38.

So, these investors are either super bullish (i.e., they expect a massive leap in SNOW stock), or they are selling covered calls or a related spread to take advantage of the high call option premium.

For example, the $4.37 call option premium (that buyers paid, but sellers received) represents 1.42% of the stock price ($306.92) over the next 9 days. Think about that. If an investor can repeat this play every 9 days for a quarter (i.e., 90 days), the expected return is 14.2% (10 x 1.42).

So, no wonder short-call investors are happy to take advantage of this income. But could SNOW rise 15% over the next 9 days?

Analysts expect Snowflake, a software database company benefiting from the AI buildout boom, to make $1.48 billion in fiscal Q2 revenue as well as 45 cents in normalized earnings per share (EPS).

That would represent an increase of 6.47% over last quarter's $1.39 billion in revenue and 15.4% over Q1 EPS of $0.39. So, any top line numbers over these projections could push SNOW higher, especially if they forecast even higher growth for the rest of the year.