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Salesforce.com (NYSE: CRM) and most other stocks in the software business are trading higher after competitor Oracle (NASDAQ: ORCL) reported second-quarter earnings after the close yesterday. ORCL had earnings of $1.3 billion, or 25 cents a share, above analysts' estimates of 23 cents per share. ORCL cited better-than-expected software sales in its earnings report, which gives the whole tech sector a lift today. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CRM.After hitting a one-year low of $35.55 in January, the stock hit a one-year high of $60.82 yesterday, which it has obliterated this morning. CRM opened this morning at $60.77. So far today the stock has hit a low of $60.77 and a high of $64.50. As of 11:35, CRM is trading at $63.78, up $3.83 (6.4%). The chart for CRM looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a February bull-put credit spread below the $45 range.
A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 53% return in just 2 months as long as CRM is above $45 at February expiration. salesforce.com would have to fall by more than 29% before we would start to lose money. Learn more about this type of trade here.
CRM hasn't been below $45 since September and has shown support around $52 recently. This trade could be risky if the economic slowdown puts a damper on the number of available jobs, but even if that happens, it would mean there are more people looking for those jobs. Plus, this position could be protected by the stock's 200 day moving average, which is currently around $47 and rising.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in CRM. He does control bullish hedged positions in ORCL.
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