In late May Salesforce (CRM) released their Q1 earnings. We had detailed a couple of bullish trades into the event. After, the stock was higher and we featured a couple updates to the bullish call calendar. Here was the original trade:
CRM ($126.30) Buy June 1st weekly / Aug 130 call calendar for 3.50
-Sell to open 1 June 1st weekly 130 call at 1.30
-Buy to open 1 Aug 130 call for 4.80
Following the event, and with the stock up $4 and near the strike, we had this to say. From May 30th:
For trade management purposes the June1st 130 short calls need to be closed and rolled before the expire as any close above 130 on Friday and they become short stock. One interesting roll is to buy to close the June calls for 1.30 and sell to open something higher and farther out. The two calls to roll to that look interesting to me are the July 135 calls at around 2.60, or the August 130 calls at about 2.30. In both cases you reduce risk by at least 1.00, and can make more if the stock goes higher.
The roll to July doesn’t allow for a ton of room to the upside, but even if the stock went quickly to 135 or above the trade is long deltas and it would make a nice profit, but you might be forced to then roll again. The roll to July works best if the stock stays where it is or moves slightly higher.
The roll to the August 140’s is more aggressive for those that want room for the stock to run to the upside, even if the risk is about the same. It does not leave the additional optionality that continuing the trade as a calendar does with the July roll.
With the stock now 136.70 the -July135 / +Aug 130 call calendar is worth about $5.00, and the Aug 130/140 call spread is worth about $5.50. So both are nice profits but with the stock now above the 135 strike and what we had said about the roll to the July 135 calls and the risk of the stock being higher quickly came true. As far as trade management the July/Aug calendar can obviously just be closed as it’s at its max value of the stock continues higher and look for another opportunity to make more, but it does have some optionality as if the stock continues higher it will still be worth $5, but if it goes lower, declining back below 135 it can make more into August, but being near term bearish isn’t really the original plan, so it all depends on whether you’d want to see the stock go higher and not really have anyway to make more money on the trade.
The August vertical can be left to breathe as it can be worth up to $10, for those worried about risking current profits the August 130’s can be sold for a profit and replaced with roll to the 135 calls, creating a 135/140 call spread in August for a credit (booking about .50 in profits with the ability to make up to an additional $5.00).
There are no bad choices on profitable trades like this as long as risk is reduced or profits are taken along the way.