To The Moon

$Salesforce.com(CRM)$ went up after hours on Wednesday (29 Nov) after it posted quarterly profits that exceeded Wall Street estimates.

Salesforce is seeing signs of improving customer sentiment despite having to grapple with soft conditions in some parts of the economy. This has provided at least a modest boost to investors’ confidence as well as how the outlook for IT spending would played out.

In this article, I will be sharing why I think it would be a good time to go for option Debit Call spread trade. And I will share what would be my target strike price for Buy Call and Sell Call.

Salesforce (CRM) IV Percentile Rank

CRM implied volatility (IV) is 30.8, which is in the 44% percentile rank. This means that 44% of the time the IV was lower in the last year than the current level.

The current IV (30.8) is -5.5% below its 20 day moving average (32.5) indicating implied volatility is trending lower.

Salesforce (CRM) IV vs 20-Day HV

The current IV (30.8) in CRM is 55.2% above its 20 day HV (19.8) suggesting that options markets are predicting future volatility to trade above the most recent 20 day realized volatility.

Salesforce (CRM) Volatility Skew

The current skew indicator show bullish signal. The implied volatility skew shows the market's bias for pricing in volatility risk to the option premium of downside puts and upside calls.

The implied volatility for downside puts is decreasing relative to upside calls, then that suggests the market is pricing in positivity to a upside move.

Salesforce (CRM) Call Spread Benchmark Index (30-Day Maturity, ATM to +5%)

CRM Call Spread Benchmark Index (30-Day Maturity, ATM to +5%) is unchanged today at 2.0% premium to stock price. This value is equal to its 52-week average premium of 2.0%. The CRM Call Spread Benchmark Index is designed to track the theoretical cost of buying an at-the-money call and selling an out-of-the-money call 5% above the spot price for options with 30 days to maturity.

How I Would Trade Using Debit Call Spread Strategy

Currently, Salesforce last close price as of 29 Nov 2023 is $230.35, I will be using this contract that expiration date is 30 days away on 29 Dec 2023, I will make one leg to buy a call on the $250 strike for $2.28.

I will add another leg - sell a call at $255 strike for $1.20.

The initial cost of the Debit Call strategy would be $1.08 ($2.28-$1.20). In order for me to make a profit from this strategy, the stock price would need to move higher than $251.08 which is calculated from long strike ($250) plus cost of the spread ($1.08).

My maximum gain would be realized if the stock moves above the $255 strike. Hence, my call spread would be worth $5 and my cost was $1.08. This will net me a profit of $3.92.

Summary

Based on how Salesforce commerce cloud powered nearly 50 million orders on digital storefronts with 100% uptime, investors confidence on Salesforce future would increase and also Salesforce should be able to overcome the headwind brought by sluggish IT spending.

I am looking forward to Salesforce closing on the higher by end of this week and beyond.

Appreciate if you could share your thoughts in the comment section whether you think Salesforce would continue to have an upside after its positive earnings.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.