We did a ton of homework in August and in paid off big time.
While we are totally looking forward to a 3-day weekend, we are sad in a way to see August close as we have had an incredible month. Last Sunday night was an all-nighter as we burned the candle at both ends while studying the fundamentals of one particular company and listening to last quarter’s conference call as they would be reporting current numbers this week.
Salesforce.com (CRM, $49.70, up $6.05) reported a profit of $76 million, or $0.09/ share, versus expectations for a $0.07/ share. We wanted to see revenue come in north of $950 million as the suit-and-ties had penciled-in $938 million, on average. Sales for the quarter were $957 million and Salesforce said it expects revenue of just over $1 billion for the current one.
The options we recommended were at 88 cents on Monday and we told our subscribers to ring the register shortly after the open at $3.
Here is how the trade looked in our Members Area on Monday at 1:30pm (EST) with our commentary (quotes from that day 8/26/2013):
Salesforce.com (CRM, $43.73, up $0.14)
Buy to OPEN September 47 calls (CRM130921C00047000, $0.88, up $0.03)
Action: Earnings are out this week on Thursday and this is an important quarter for the company. If the company can show its back on track following a disappointing previous quarter, shares could make a run to $50. Another below par quarter could push shares below $40 and these options would collapse making this a high risk/ high reward trade. (END)
Here was our update yesterday morning and ahead of the event (quotes from 8/29/2013):
Salesforce.com (CRM, $42.78, up $0.32)
September 47 calls (CRM130921C00047000, $0.65, flat)
Entry Price: $0.88 (8/26/13)
Exit Target: $1.75+
Stop Target: None
Action: Earnings are due out on after the close today. There are 36 analysts that follow the company and they have estimates ranging from 6-8 cents, with the average at 7 cents. This leaves plenty of room for a surprise or a disappointing number. Revenue needs to come in north of $950 million to impress the suit-and-ties.
If the company can show its back on track following a disappointing previous quarter, shares could make a run to $50. Another below par quarter could push shares below $40 and these options would collapse making this a high risk/ high reward trade. (END)
Here is today’s chart for CRM:
Here is the call option quote from today:
Here is how the trade currently looks in our members Area as we give you a sneak peak at the profits are peeps are making:
Salesforce.com (CRM, $49.70, up $6.05)
September 47 calls (CRM130921C00047000, $3.50, up $2.70)
Entry Price: $0.88 (8/26/13)
Exit Target: $1.75+ (closed half at $3.00 on 8/30/13)
Stop Target: $2.40 on other half
Action: We would love to see a close above $50 today. The options opened at $1.82 and traded to a low of $1.69 before zooming to $3.55 as we head to press. Set a Hard Stop on the other half of the trade at $2.40 for the rest of today’s session and into next week. This will protect our profits and you can now take the rest of the day off to hit the golf course. (END)
As you can see, there was a lot of risk to this trade but our homework and research was showing the company would get back on track. We had been following shares for a few months and we also felt good support at $40 would hold and after it did we knew there could be an upside surprise and a run to $50 in the works.
Although 2Q earnings season is coming to a close, the next cycle starts in October and we plan taking quite a few more of these types of trades. However, some of the trades could involve put options as we believe there are a few stocks that will tank hard after MISSING earnings. Don’t be afraid to short stocks or play the downside of the market as the profits can be just as enormous.
As far as today’s action, the bulls were trying to extend their 2-day gains but we mentioned on Wednesday the indexes could remain in a trading range into today’s close.
Most of the indexes are except it is important to note the Dow is below 14,800 with today’s 47 point drop to 14,787. The Nasdaq is trading below 3,600 with it’s 28-point slide to 3,591. The S&P 500 is down a 6-pack to 1,631 while the Russell 2000 is off an unlucky 13 points to 1,013.
There is a ton of headline risk over the weekend, with the biggest being the U.S./ Syria crisis and next week will be major for economic news. The zombies will also start filing back into D.C. as the debt ceiling debate takes center stage once again. Companies will also give the market a peak into upcoming 3Q earnings by raising or lowering guidance during the back half of September. Earnings start to flow in the second week of October so there will be plenty of action over the next 2 months.
With Wall Street away this week and light volume today, we wouldn’t be surprised to see the slick-talking pros get caught off-guard again next week as they have all year but today’s pullback is favoring the bears as there could be more weakness ahead.
We will be back Monday night with the Weekly Wrap as the market will observe Labor Day and on Tuesday with the Daily. Before we roll, we couldn’t resist bringing out our favorite video in case the bulls start clapping and with football season just around the corner. Here is our man, Randy:
Until then have a great weekend everyon
Special Note: We could have a new trade today as we are watching one stock into the close. It is the first possible recommendation on our Watch List from this morning so stay locked-and-loaded.
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