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John J. Hardy
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What are your options - Salesforce earnings
Koen Hoorelbeke
Investment and Options Strategist
Summary: Salesforce earnings: 3 options strategies to profit from a slight upward, downward, or range-bound stock movement, with limited risk.
What are your options - Salesforce earnings
Salesforce.com (CRM) is scheduled to release its quarterly earnings report later this week. The upcoming announcement provides an occasion for options trading strategies that can be tailored to various market outlooks. In this article, we will present three options strategies focused on Salesforce's earnings release.
Each strategy aims to offer a defined risk profile to suit different trading preferences. The article explores these strategies in detail, providing the necessary information for you to make an informed decision.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
1. Bullish Put Broken Wing Butterfly
1. Strategy: The Put Broken Wing Butterfly involves buying one in-the-money (ITM) put, selling two at-the-money (ATM) puts, and buying one out-of-the-money (OTM) put. This strategy is used when a trader believes the underlying security will remain within a certain price range until expiration, and is looking to profit from the premium decay.
2. Trade Setup: The specific trade here involves:
- Buy to Open 1 CRM 01-Sep-23 212.5 Put
- Sell to Open 2 CRM 01-Sep-23 210 Put
- Buy to Open 1 CRM 01-Sep-23 205 Put
Opening this trade will give you an credit of $0.86 per share, or $86 per contract. The margin requirement to open this trade is €267.09 (or about $289, with €1 = $1.082)
3. Premium and Risk: The net premium for this setup is $0.86 per share, giving you a credit of $86 per contract. The maximum risk for this trade is $164 per contract, which will occur if the CRM moves significantly beyond the 205 strike price at expiration. On the other hand, the maximum profit potential is $336, which will be realized if the Salesforce price is at the short strike ($210) at expiration.
4. Breakeven Point: The breakeven point is 206.64, indicating that as long as CRM is above this level at expiration, the trade will at least break even.
5. Implied Volatility (IV) Rank: The IV Rank is 50.70%. This can be interpreted as the current level of implied volatility is higher than approximately 51% of its readings over the past 52 weeks.
6. Days to Expiration (DTE): The time until expiration for these options is 3 days.
The goal of this strategy is to collect the premium, while the underlying (CRM) continues to move upward. As we collect $86,- on a €267.09- (= +/- $289) margin requirement over a period of 3 days, this yields us approx. 29.8% return in 3 days.
If the price of Salesforce is at 210 at expiration, you will get the maximum profit ($336 per contract).
In case the CRM goes south and opposite of what we expect and goes beyond the breakeven point our strategy will result in loss. Depending on the time where we are we can exit early and limit our losses. If you do nothing and the price goes below the 205 long put, this strategy will result in the maximum loss.
2. Neutral Iron Condor
1. Trade Setup: The setup involves four options on the S&P 500 Index:
• Buy to Open 1 CRM 01-Sep-23 232.5 Call
• Sell to Open 1 CRM 01-Sep-23 227.5 Call
• Sell to Open 1 CRM 01-Sep-23 200 Put
• Buy to Open 1 CRM 01-Sep-23 195 Put
2. Premium and Risk: The net premium received from establishing this trade is $194. The maximum risk, or the most you could lose on this trade, is $306. This maximum loss occurs if the price of CRM at expiration is either above 229.44 or below 198.06.
4. Breakeven Point: The breakeven points are 198.06 and 229.44. Any price of CRM at expiration between these two points will result in a profit from the trade.
5. Probability of Profit (POP): The Probability of Profit (POP) is 55.64%. This is a rough estimate of the chance that the trade will be profitable at expiration. Please note that this is a simplification and actual probability may vary based on factors like changes in implied volatility or the price of the underlying asset. The POP is based on the delta.
6. Implied Volatility (IV) Rank: The IV Rank is 50.70
7. Days to Expiration (DTE): The options involved in this trade are set to expire in 3 days. This is the period within which the expected price stability should occur for the trade to be profitable.
8 Expected Move: plus or minus $14.87, based on a ATM straddle with expiration on 1 September 2023.
3. Bearish Call Broken Wing Butterfly
1. Strategy: The strategy used here is a Broken Wing Call Butterfly, which is a type of options strategy that combines two vertical spreads to create a range where the trade can profit, while eliminating the risk on one side of the range. The strategy is designed to profit from a rise in the underlying asset's price but up to a certain level.
2. Trade Setup: The setup involves three call options on Salesforce:
• Buy to Open 1 CRM 01-Sep-23 215 Call
• Sell to Open 2 CRM 01-Sep-23 210 Call
• Buy to Open 1 CRM 01-Sep-23 207.5 Call
3. Premium and Risk: The net premium received for establishing this trade is $101 per contract. The maximum risk, or the most you could lose on this trade, is $149 per contract. This maximum loss occurs if the price of Salesforce at expiration is above 215.
4. Breakeven Point: The breakeven point is 213.51. Any price of Salesforce at expiration below this point will result in a profit from the trade.
5. Implied Volatility (IV) Rank: The IV Rank is 50.70
6. Days to Expiration (DTE): The options involved in this trade are set to expire in 3 days.
The goal of this strategy is to collect the premium, while the underlying (CRM) continues to move downward. As we collect $101,- on a €241.68- (= +/- $261,5-) margin requirement over a period of 3 days, this yields us approx. 38.6% return in 3 days.
If the price of Salesforce is 210 at expiration you will get the maximum profit of this trade ($351 per contract)
In case the Salesforce price goes up and opposite of what we expect, and goes beyond the breakeven point our strategy will result in loss. Depending on the time where we are, we can exit early and limit our losses. If you do nothing and the price goes above the 215 long call, this strategy will result in the maximum loss.
Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.
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