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.