CRM will release its earnings report on Aug. 19th (Thursday). I own CRM. What should I do?
CRM has been trading the $140-150 range prior to this recent downturn. The call option (part of covered call) that I am short has a strike at 130. I felt pretty comfortable to hold CRM into the earnings season. My reason was that even if there is a selloff after the earnings, CRM has to drop ~10% before it reaches my strike price. So my covered call position was pretty safe. But now CRM is in the $130 range, leaving very little room for downward movement. After an earnings report, there are 3 possibilities to CRM’s prices: going up, going down or staying in the current level. If it goes up or stays at the current level, there is no problem to my CRM position. I can continue to roll up and reap profits in time value. But what if it goes down? My investment strategy is all about playing it safe while making reasonable money. So I rolled up my calls at strike of 130 expiring in 3 days to 130 expiring in Sept (a calendar spread). This spread gave me an additional $328/contract. This additional profit (already in my pocket) / margins requirement = 8.4% (in one month) or ~100% annualized (8.4 x 12).
Why do I roll up today before the earnings? The reason is simple: if CRM goes up, my profit of $3.28/sh in a month is secured. If CRM drops, I have already pocketed an additional $3.28/sh which further reduced my cost basis. I am bullish on this stock. I reviewed the 2 years history of CRM’s earnings. CRM went up after all but one such events. So it’s more likely for CRM to rise after this earnings report. Even if it goes down, I believe it will be a temporarily event.
