It’s a good bet you’ve heard the saying that trading involves risk. Well … it does. But naturally, it also has rewards if a trader’s outlook matches the strategy he or she has implemented. Here is a trade idea on Citrix (CTXS) with a rick factor, but also a nice potential reward.
Citrix Systems (CTXS — $58.02): Call Debit Spread
The trade: Buy the CTXS Dec 60/62.5 Bull Call Spread (buying the Dec 60 call and selling the Dec 62.5 call) for 80 cents or less.
The strategy: The maximum potential profit for this trade is $1.70 ($2.50 – $0.80) if CTXS is trading above $62.50 at December expiration. The maximum loss is 80 cents (or what was paid for the spread) if CTXS is trading below $60 at December expiration. Breakeven is $60.80 at expiration based on a cost of 80 cents.
The rationale: Citrix is a cloud-computing company that’s attempting something of a comeback. Early in October, CTXS announced preliminary results for the third quarter that fell short of expectations. Consequently, Citrix stock plummeted close to $8 in one day. When actual Citrix earnings for Q3 were revealed later that month, the damage did not seem as bad as previously expected. Net income fell about 1%, but earnings per share actually topped expectations.
Citrix has been repurchasing its shares for about five years now, and it said the board just recently approved an additional $500 million worth of shares — good for boosting earnings per share in the future.
Click to Enlarge Taking a look at the chart of Citrix stock, shares are attempting to make their way back higher, as noted above. Just recently, CTXS broke through a resistance area around $60 where it failed to get through on two other occasions.
On Wednesday, Citrix stock fell below that area again after Amazon announced it launched a new cloud product. It remains to be seen if it will move above resistance yet again, but this trade idea is counting on it. With more than 30 days to expiration, it has some time.
Implementing a directional debit spread is even a little more attractive due to the nature of the option premiums. The implied volatility of the options are below historical levels making them attractive for a buying opportunity. The next potential resistance for CTXS is around $65, where the daily 50-day simple moving average is currently hanging out.
We obviously can’t say for sure whether Citrix stock will fill the gap, but this recent break of resistance is an indication it might try.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.