Salesforce (CRM) is experiencing an orderly pullback to the 50-day moving average.
The Barchart Technical Opinion rating is an 80% Buy with a Weakening short term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
CRM rates as a Strong Buy according to 32 analysts with 3 Moderate Buy ratings, 9 Hold ratings and 1 Strong Sell rating.
Salesforce.com is the leading provider of on-demand Customer Relationship Management (CRM) software in critical operations i.e. sales force & marketing automation, customer service & support, document management, analytics and custom application development.
It offers a technology platform for customers & developers to build and run business applications. Salesforce helps companies of every size & industry to connect with their customers through cloud, mobile, social, IoT & artificial intelligence (AI).
There are two main revenue streams: Subscription & Support and Professional Services & Other.
Subscription revenues comprise subscription fees from customers, accessing the company's enterprise cloud computing services (Cloud Services), software licenses and subscription fees recognized from customers for additional support beyond the standard support lent by the company.
Professional Services & Other revenues consist of fees that the company derives from consulting and implementation services and training.
The next wave of AI will build further on generative AI's capabilities, enabling AI to make decisions and take actions across applications without human intervention. Salesforce CEO Marc Benioff calls it the "digital workforce." And his company is leading the growth in this Agentic AI with its new Agentforce product.
Today, we’re going to look at a bull put spread trade.
A bull put spread is a bullish trade that also can benefit from a drop in implied volatility.
The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.
CRM BULL PUT SPREAD
Implied volatility is currently sitting at 26.57% which gives CRM and IV Percentile of 36% and an IV Rank of 13.64%.
Salesforce’s expected move between now and February 32 is around 7.17% in either direction. On the downside, that would put CRM stock at around $310.
In other words, the options market is expecting CRM stock to stay above $310 between now and February 21.
To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.
Selling the February 21 put with a strike price of $310 and buying the $300 put would create a bull put spread.
This spread was trading yesterday for around $1.65. That means a trader selling this spread would receive $165 in option premium and would have a maximum risk of $835.
That represents a 19.8% return on risk between now and February 21 if CRM stock remains above $310.
If CRM stock closes below $300 on the expiration date the trade loses the full $835.
The breakeven point for the bull put spread is $308.35 which is calculated as $310 less the $1.65 option premium per contract.
Salesforce is set to report earnings in late-February, so this trade should have no earnings risk if held to expiration.
Conclusion And Risk Management
One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $165, so we could set a stop loss equal to the premium received, or a loss of around $165.
Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $320.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
