Here’s the CRM strategy we sent to Earnings Trade Alerts members this afternoon. Sign up today to get in on the action!
CRM is our only playable earnings trade this week. Here’s what we’re doing (keeping size small as always with earnings trades)…
Earnings Trade Candidate: CRM
Easy to Borrow (ETB): yes
Liquid Options: decent OI & volume, bid/ask spread of approx 2-6 cents
Offers Weekly Options: yes, Aug5
IV differential: approx 3x, 135% front month IV vs. approx 45% historical IV
Current Price: 43.35
Expected Earnings Move: +/- 3.15
Expected Move Range: 40.20 - 46.50
Copy the trade below and paste it into our recommended broker, thinkorswim (adjust number of contracts according to your capital risk preferences).
SELL -1 STRANGLE CRM 100 (Weeklys) AUG5 13 48/39 CALL/PUT @.45 LMT
Short Strangle Legs (per spread):
Sell 1 CRM Aug5 39 Put (credit to account)
Sell 1 CRM Aug5 48 Call (credit to account)
Max Potential Gain: $45 per spread if CRM expires between 39 & 48
Max Potential Loss: theoretically unlimited, BP effect of $440 per spread, 2x expected move loss of $140 more probable max loss.
Break Even: 38.55 lower b/e, 48.45 upper b/e
Explanation: Keeping it simple here with a Short Strangle. This spread allows us to get just above 1.5x outside the expected move with only one day of duration, all while receiving a credit a little over 1% the price of the underlying.
A 2x expected move pop or drop in CRM would result in a loss of approx $140 per spread, so we’re basing our max potential loss on that more probably number rather than the BP effect.
This spread makes sense to us because we would be happy comfortable going long CRM from 38.55 cost basis or short from 48.45 cost basis. Follow at your own risk, and remember we size down on all earnings plays. We will do a 5 lot max here.
Here’s a chart of CMR showing the profit range (green oval), as well as the risk profile also noting the Short Straddle we considered:
NOTE: Trading Options into earnings includes financial risks and may result in loss of capital. Do not consider an earnings based Options strategy unless you understand and accept the capital risks associated with the trade. Furthermore, we ALWAYS keep position size small when playing earnings based trades.
As noted on twitter a few minutes ago, we intend to cover the Feb4 150 Calls in the first 10 minutes of trading. We will let the Feb4 115 Puts expire worthless. This exit action pertains to the CRM Feb4 115/150 Short Strangle earnings trade we shared yesterday.
Given the strong earnings momentum after the report yesterday and the momentum continuation pre-market this morning, we do not want to risk holding the Strangle into this afternoons Feb4 expiration. That said, the Puts are clearly set to expire worthless, so there’s no sense in exiting them and taking on unecessary transactional costs.
Another solid earnings trade. I’ll admit, this one had me nervous after yesterday’s post earnings rally momentum!
We haven’t placed an earnings trade in several days, but saw a nice opportunity today in CRM and took it. At 3:30pm EST we sent the email below to members. So far so good on our trade, but anything can happen prior to tomorrow’s opening bell.
We are sharing the members only email for educational value since the trade can no longer be placed.
There are a few decent earnings candidates today, but one stands out to me. CRM reports after the bell. The stock is liquid, offers Feb4 weekly options that expire tomorrow, has plenty of liquidity in the options, has 150% IV on the Feb4 weekly options, and has an expected move of 10.25.
I want to use the Feb4 Weekly Options to trade this stock based on the expected move range, which based on the current price of 131.75 is 121.50 - 142.00. Given the solid premium in the weekly options, I have opted for a simple yet undefined risk trade.
I sold the Feb4 Weekly 115/150 Strangle, meaning for each spread I sold one Feb4 115 Put and one Feb4 150 Call. I filled a few @ 1.08 and a few @ 1.05 for an average price of 1.065. With break evens at 113.935 and 151.065 on the spread, it keeps me nearly 2x outside the expected move range. I like to be at least 1.5x outside the expected move range when I short Strangles into earnings, so I am comfortable here.
If you want to trade CRM earnings and prefer a defined risk spread, I like the Feb4 115/120/140/145 Iron Condor @ 1.75 Limit (buy 115 put, sell 120 put, sell 140 call, buy 145 call…all Feb4 options).
Good luck if you decide to trade either of these strategies, or create your own strategy.