Overview: Salesforce.com (NYSE: CRM)
Salesforce.com provides customer and collaboration relationship management services to businesses and industries worldwide. It also offers a technology platform where customers can build and run business applications.
CRM reports its first quarter results today after the close. It is expected to post earnings of $0.27 a share on revenue of $482 million.
The last earnings move in CRM produced a move of less than 5% but we are not convinced that will be the outcome for this report. With only one day left in May expiration, we see the potential for a jump in stock movement.
Options Trade — CRM May Strangle
An options trading investor may consider buying a CRM strangle with the assumption the stock will make a large move either up or down. As with all strategies, the investor must evaluate if the cost of the strategy with one day left until expiration is worth the risk.
With salesforce.com trading around $135, the investor could buy the CRM May 140 Call and May 130 Put Strangle. This strangle would have cost the buyer this morning about $5.60 — $2.95 for the call plus $2.65 for the put. (Check the option chains for the latest prices).
The strategy should profit if the stock moves large in either direction. If earnings are better than expected and the shares trade higher, the strategy has unlimited profit potential after a breakeven of $145.60. If the earnings report is thought to be negative and sends the shares lower, the downside breakeven is $124.40.
Find more option analysis and trading ideas at Options Trading Strategies.
The maximum risk to the investor is the cost of $5.60. Because there is one day left for the May options, the investor needs a significant move from the stock. This type of strategy has its cost and should be considered carefully, but if significant movement is achieved in the stock price, it could produce profits in one day.
Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.
