Salesforce.com, Inc (NYSE:CRM) rallied over 3% off its most recent earnings. This is the opposite reaction last time they reported when markets sold it down hard.
When it comes to CEOs, they don’t make them more polished than CRM CEO Marc Benioff. He sells his companies’ achievements and future goals better than most I’ve ever seen.
Why is that important? It gives traders courage to bet long with a winner like him.
Click to Enlarge It doesn’t hurt that Jim Cramer offers him a platform from which he blurts out his bullish CRM stock prospects yet to come. I tend to shy away from chasing rallies like this. But to balance my portfolio, I want to bet long with Salesforce’s momentum.
Trade No. 1 — The Bet: Buy the CRM Jan $85/$87.50 debit call spread. This is a bullish position for which I pay 30 cents per contract to open. I need CRM stock to rally past my spread for a chance at over $2 per contract in profit. I chose January just to give myself time to be right.
I usually like to hedge my bets. In this case, I want to sell bullish risk for a chance to offset the out of pocket expense.
Trade No. 2 — The Bank: Sell CRM Mar $60/$55 credit put spread. This is a bullish trade for which I collect 40 cents per contract. If successful, the yield on money risked would be 7%. I set this trade with a 23% buffer from current price, which translates into a 90% theoretical chance of success.
Taking both trades would put me long CRM for free. Even if CRM stalls, any premium I collect from selling the debit call spread is pure profit as long as CRM stock stays above $60 through March.
Fundamentally, few can argue against the success of CRM. They’ve had to compete with giants like Microsoft Corporation (NASDAQ:MSFT). I do have to worry about the fact that it’s considered a momentum stock. This is a group of high-profile companies whose stocks run fast in either direction. Amazon.com, Inc. (NASDAQ:AMZN) would be another example of a momentum stock.
Speaking of AMZN, I want to introduce the notion that there is always a chance that AMZN might decide to enter Salesforce’s arena. But that risk is far off everyone’s radar and is not likely to interfere with this trade setup.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
