Salesforce (CRM) is looking very strong and is above rising 21, 50 and 200-day moving averages.
The Barchart Technical Opinion rating is a 100% Buy with a strengthening short-term outlook on maintaining the current direction.
CRM rates as a Strong Buy according to 20 analysts with 2 Moderate Buy ratings, 12 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.
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 39.08% which gives CRM and IV Percentile of 37% and an IV Rank of 42.79%.
Salesforce’s expected move between now and June 16 is around 8.36% in either direction. On the downside, that would put CRM stock at around 194.
In other words, the options market is expecting CRM stock to stay above 194 between now and June 16.
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 June 16 put with a strike price of 195 and buying the 190 put would create a bull put spread.
This spread was trading yesterday for around $1.00. That means a trader selling this spread would receive $100 in option premium and would have a maximum risk of $400.
That represents a 25% return on risk between now and June 16 if CRM stock remains above 195.
If CRM stock closes below 190 on the expiration date the trade loses the full $400.
The breakeven point for the bull put spread is 194 which is calculated as 195 less the 1.00 option premium per contract.
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 $10, so we could set a stop loss equal to the premium received, or a loss of around $100.
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 200.
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.
On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
