CRM reports Q1 earnings tonight, the options market is implying about a 10% move which is rich to the approximate 7.5% 4 qtr avg move.
-The street is overwhelmingly positive on the stock with 32 Buys, 3 Holds and 5 Sells, with an avg 12 month price target of ~$172.
-The stock is down about 16% from the 52 week, and all time highs made last month, and only up about 5% from the gap that followed their better than expected Q4 earnings back in Feb. $130 appears to be a fairly important support level, right above the 200 day moving average.[caption id="attachment_12063" align="aligncenter" width="300" caption="1 YR CRM chart from Bloomberg"][/caption]
CRM has seen its average implied vol increase in recent weeks. Not near the levels it’s seen going into previous earnings reports though. Average historical implied vol tends to be in the 40’s (yellow) Actual vol in the stock is even lower despite its recent sell-off from highs:
The biggest thing to notice is the volatility skew between months. May is jacked with only 1 day left until expiration and earnings after the bell (red):
OUR VIEW: Back in mid April, I bought a May 145/130/115 Put Fly that would have been an ok trade at this point but took it off as it appeared the stock was not going to break while pressing up against all time highs……At this stage of the market cycle I think it is safe to say that even down 16% in the last couple weeks the risks are clearly to the DOWNSIDE as misses on overpriced names are not being treated lightly by investors. Given the high price of options as illustrated above it is almost impossible to make a directional bet with long premium.
For instance if you thought the stock could be down 10% inline with the implied move, to buy the May 130/120 Put Spread (stock ref 134.40) for 3.30 is extremely expensive, risk 3.30 to make 2x your money if the stock is down 10%
SO unless you want to do an Enis and CC special by selling the at the money straddle in May and Buy the June Strangle to cover your wings, I don’t see a ton to do.
No Conviction, No Trade.