Thursday, November 17, 2011

CRM Earnings Tonight

As originally documented here, CCI believes  (CRM) is a bubble waiting to pop. 

CRM report earnings tonight after the bell, and CCI felt it was time to "put some money behind my mouth". With CRM trading around $135 yesterday, CCI bought the Nov $130 puts and sold the Nov $120 puts yesterday at the cost of $2.66.  (A put spread).  This could be rationalized as a portfolio hedge or simply a re-investment of past profits made from shorting CRM.  However, with only 2 days until expiration, this was far more of speculative trade on CRM disappointing later today.  In essence this trade is simply a bet with  almost 4:1 odds of a miss. (i.e. lose $266/contract if they meet expectations or make $1000/contract if they disappoint). 

Today, prior to earnings, CRM fell aggressively.  I guess that fall was because of some other tech stock misses, speculators running away from CRM before earnings, some info leaking somewhere, or who knows.    That pre-earnings drop was kind of surprising to me,  so I decided to take the trade off early with only a $128 gain/contract.    I guess some might call that a 48% gain on capital,but the risk of loss was quite high, so that is not really fair to say.

Was I too quick on the sell trigger on a winning position?  Probably yes.
We will know later today, ......but.... s they say " bulls make money, bears make money, pigs get slaughtered".  So I'll watch the earning results with great interest..... while counting my winnings.

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