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Archive for September, 2021

A Salesforce to be Reckoned With

Monday, September 20th, 2021

As its ticker symbol implies, Salesforce.com (CRM) provides cloud solutions for customer relationship management needs. CRM reported earnings in late August that blew away expectations on both the top and bottom lines. The report was met by the usual round of target price increases that reached as high as $340 (CRM closed at $260 on Friday).

The stock gapped higher after the report and extended as much as 5.5% higher the next day, eventually closing with a 2.5% gain. But the shares then sagged, joining the rest of the market in the early-September swoon. In fact, CRM fell more than 8% from its post-earnings high.

But the shares appeared to find a bottom last week, thanks to the support of the 50-day moving average. Since turning higher in May, the 50-day has supported pullbacks in July and August. CRM has been stepping higher since a low in early March, putting in a series of higher highs and lows in a rally that has covered nearly 30%. This trade is relying on this trendline support holding for the next six weeks, as the short 250 put of our credit spread is just below the 50-day.

If you agree that CRM will stay above the 50-day moving average (blue line in chart), consider the following trade that relies on the stock remaining above 250 (red line in chart) through expiration in six weeks.

Buy to Open CRM 29Oct 245 put (CRM211029P245)
Sell to Open CRM 29Oct 250 put (CRM211029P250) for a credit of $1.10 (selling a vertical)

This credit is $0.02 less than the mid-point of the option spread when CRM was trading at $260. Unless the stock rallies quickly from here, you should be able to get close to this amount. Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $108.70. This trade reduces your buying power by $500 and makes your net investment $391.30 ($500 – $108.70).  If CRM closes above $250 on October 29, both options will expire worthless and your return on the spread would be 27% ($108.70 / $391.30).

Going Once, Going Twice … Sold on CPRT

Monday, September 13th, 2021

Going Once, Going Twice … Sold on CPRT

Copart (CPRT) provides online auction and vehicle remarketing services in the U.S. and several other countries. On Wednesday, the company reported Q4 earnings that easily beat on the top and bottom lines. Used car prices are soaring and CPRT is positioned perfectly to leverage the market. Analysts seem to agree, as CPRT received several target price increases that ranged up to $165 (CPRT closed at $143 on Friday). Despite the positive news, the stock fell as much as 5% on Thursday before closing 2% lower. However, CPRT gained more than a percent on Friday amid a down market.

The stock has been in rally mode since late March, gaining more than 30%. The 50-day moving average has been instrumental in guiding the uptrend, containing pullbacks in May, June and August. The trendline appears to be doing its job again, as it supported this week’s post-earnings drop. This trade is relying on this support holding for the next five weeks as the short 140 put of our credit spread is just below the 50-day.

If you agree that CPRT will stay above the 50-day moving average (red line in chart), consider the following trade that relies on the stock remaining above 140 (blue line in chart) through expiration in five weeks.

Buy to Open CPRT 15Oct 135 put (CPRT211015P135)
Sell to Open CPRT 15Oct 140 put (CPRT211015P140) for a credit of $1.20 (selling a vertical)

This credit is $0.05 less than the mid-point of the option spread when CPRT was trading at $143. Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will be only $1.30 per spread.  Each spread would then yield $118.70. This trade reduces your buying power by $500 and makes your net investment $381.30 ($500 – $118.70).  If CPRT closes above $140 on October 15, both options will expire worthless and your return on the spread would be 31% ($118.70 / $381.30).

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