Salesforce.com, Inc. (NYSE:CRM) is an amazing growth story. In the early days of the new tech era, it was the little giant that competed with and beat the mega-cap techs and established itself as the original cloud company. Since then they have achieved neck-breaking growth speeds and now dominates its competitors.
We now live in a new tech world where everything revolves around the cloud. There are a few companies who control it like Amazon.com Inc (NASDAQ:AMZN) and CRM. The cloud platform in combination with artificial intelligence and data management are how companies will need going to operate forward. For example retailers need to know what their clients like and how to address that to best offer it to them.
So needless to say the future business prospects for CRM are bright. Now, this is not a cheap company. Just like AMZN, impressive growth usually demands astronomic valuations. But when considering investing in such companies, value is not what I’m looking for. So far as long as they’re growing as fast as they are, I have to ignore my fundamental part of the brain.
Year-to-date, CRM stock is up 20%, so it has a position of strength even during these uncertain times. If headlines abates then it will accelerate through the summer.
Technically, CRM stock looks frisky. It now looks like it’s about to retest its all-time highs. And if the macroeconomic environment allows for it, it could do it as early as this or next week. Since the headline stream from tariff wars and geopolitical unrest are still abuzz, I don’t want to risk $125 per share with no room for error. Instead, I will use options where I can create a buffer zone between current price and my risk.
In essence, I want to bet on Salesforce stock but with no immediate out-of-pocket exposure. This way I can profit even if the rally stalls. This is especially important when trading while there are extraneous circumstances that move the stocks price to no fault of its own. One tweet from President Donald Trump about new tariffs and down goes the whole market.
Wall Street experts agree as unanimously they rate CRM stock as a “buy.” And even near its all time highs, the stock still trades below the average analyst price target range. Click here for a detailed review of the stock and for an ongoing free copy of my weekly newsletters.
CRM Stock Trade Idea
The Bet: Buy CRM Jun 22 $127/$129 debit calls spread for 75 cents, where I have a chance to double my money if the price sets a new high.
The Bank: Sell the CRM Nov $95 put and collect $2.50 per contract to open. This is a bullish trade that has an 85% theoretical chance of success. Otherwise I would own CRM shares at that price.
The net effect of the pair trade is a credit. So as long as price stays above the puts sold, any premium I collect from closing the call position would be incremental profits.
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 as @racernic on twitter and stocktwits.
