CRM Short Strangle Into Earnings

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.

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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.