CRM Analysis

Salesforce.com inc. (CRM)

Update 11/22/2017: CRM reported earnings of $0.39 per share, beating the Street estimate by 2 cents. The price fell by $1.95 at the opening, well within the profit zone, I exited at 39.9% of maximum potential profit.

Zacks had anticipated a slight chance of an undershoot, giving CRM an earnings surprise predictor score of -0.37 in the context of neutral longer-term expectations for the stock.

Going into earnings CRM showed an upward trend, with the ADX at 52.93,  with the +DI at 32.2 and the -DI at 4.7 for a DI ratio of 6.85.

CRM closed the first trading session after earnings were published down $1.97 from the pre-earns close, a span well within the four-quarter maximum movement of $15.64, the average of $5.26 and the central tendency of $2.52, irrespective of direction.

Shares declined by 1.7% during my holding period of less than a day, or a +628% annual rate. The options position produced a 63.6% return for a +23,206% annual rate


CRM publishes earnings on Tuesday before the opening bell.

I shall use options that trade for the last time 10 days hence, on Dec. 1.

Implied volatility stands at 33%, which is 3.3 times the VIX, a measure of the volatility of the S&P 500 index.

CRM’s IV stands in the 64th percentile of its annual range and at the pak of its most recent broad movement.

The price used for analysis was $108.57.

Premium: $5.12 Expire OTM
CRM-iron fly Strike Odds Delta
Calls
Long 120.00 92.1% 9
Break-even 114.12
Short 109.00 54.9% 48
Puts
Short 109.00 45.2% 52
Break-even 103.12
Long 98.00 89.2% 9

The premium is 46.5% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

The zone of profit in the proposed trade covers a $5.50 move either way. The biggest immediate move after each of the past four earnings announcements was $15.64, and the average was $5.25. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.52.

The expected move covering 85% of occurrences is $4.97, within the profit zone.

The bid/ask spread is 6.1%.

Decision for My Account

I have entered a position on CRM as described above. The stock at the time of entry was priced at $108.39.

By Tim Bovee, Portland, Oregon, November 21, 2017

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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