Salesforce.com Inc. (CRM) is a cloud computing service that provides customers with customer relationship management platforms. The company’s stock is currently trading around $69.70 in a 52 week range of $51.04-$78.46. The stock has been performing well this year with shares rallying 17.64% year to date. Despite the stocks relatively strong performance through the year CRM is selling off hard ahead of earnings set to be released after the bell today.
The stock has a mixed performance record on earnings. Over the past 12 quarters the stock has rallied 6 times and sold off 6 times with an average move of 6.95%. With stock at current levels options markets are implying that the stock can move higher or lower by $5.35 by tomorrow’s expiration. Although the historical performance of the stock is mixed the chart is starting to look much weaker in CRM. The stock is lower by nearly 3.5% today and is breaking out of value for the month. The stock is now also firmly below the Ichimoku Cloud indicating a move into bearish territory. With a mixed performance history and a weak chat I believe CRM is setting up well for a short position via options.
Using the move implied by the options market I can calculate a downside target of $64.35. I can use the downside target to set up a trade.
Possible trade: Buying the CRM Aug 66-64 Put Spreads for $0.50
Risk: $50 per 1 lot
Reward: $150 per 1 lot
Breakeven: $65.50