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Salesforce.com (NYSE: CRM) shares are higher today after a Piper Jaffray analyst reiterated his Buy rating and $70 price target on the stock, citing increased user satisfaction and the potential of higher revenues with the company's adoption of the AppExchange program. But the real excitement on the Street stems from rumors that the CRM has approached Oracle (NASDAQ: ORCL) with a $75 a share sale offer. 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 one-year low of $37.24 in August, the stock hit a one-year high of $65.52 in December. CRM opened this morning at $53.06. So far today the stock has hit a low of $53.06 and a high of $55.90. As of 11:25, CRM is trading at $54.76, up $3.89 (7.7%). The chart for CRM looks bearish and steady, 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 March bull-put credit spread below the $40 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. This particular trade will make a 9.9% return in just six weeks as long as CRM is above $40 at March expiration. Salesforce.com would have to fall by more than 26% before we would start to lose money.
CRM hasn't been below $40 since September and has shown support around $50 recently. This trade could be risky if the economy continues to worsen, but even if that happens, this position could be protected by the support the stock might find from its 200-day moving average, which is currently around $48 and rising.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in CRM. He does control bullish hedged positions in ORCL.
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