Not that they could see the future, but Salesforce.com (CRM) picked a rough day to report earnings. A late rally might provide a little broad market support, but CRM will be fighting a bit of pessimism as it reports after the bell.
I understand it is only a single day in the market, but emotions drive short-term trading as well as initial reactions to earnings. That could result in a bounce opportunity if CRM beats and provides solid guidance, but trades lower.
I often look to a company like Veeva Systems (VEEV) as a hint toward CRM given their close working relationship and sharing of many clients. CRM is, of course, significantly larger which is why VEEV only offers a hint, but that hint was definitely strong on the bullish side of the fence.
The options market is pricing in a big move this week. Expectations are for a 7% change by Friday compared to Monday's close. Compared to the actual results of the past two-and-a-half years, this is aggressive pricing. CRM, an Action Alerts PLUS holding, has only closed with a move greater than 5% the day after earnings one time in its past 10 reports. That doesn't scream buy volatility.
The market appears to be factoring the most recent report, which saw a 10% one-day move, with significant weight. That comes across more as an outlier than the new norm, though.
Post-earnings movements have been randomized across multiple periods including same day, 13 days later, 21 days later, and 34 days later. In other words, history is not much of a guide for any post-earnings trade ideas. Instead, I'd focus on the first-day post-earnings move. A strategy such as an iron condor or calendar spread holds the most appeal.
In terms of an iron condor, I'd consider selling the March 8, 2019, $165 call and $150 put while buying the March 8, 2019, $170 call and $145 put. At the time of writing, the net credit hovered around $240, so a trader would be risking $260 to make $240 and the stock would have to move more than 8% by Friday for the max loss to be realized.
I might flip the script on a calendar spread selling those March 8, 2019, $170 calls and $145 puts to partially finance a buy of the March 22, 2019, $170 calls and $145 puts. This is going to run a bit north of $2.00. While I don't favor this as much, there is some logic to believing the stock will move over the next few weeks as it has rarely been flat two-weeks post-earnings.
The real shame for bulls is the huge cup-and-handle setup that had been forming on the weekly chart. After a long period of consolidation between October and February, the shares appeared ready to tackle $200 on a close above $165. That could still occur as the handle is not broken yet; however, if CRM loses the 10-week simple moving average (SMA) as support ($154), then I expect a test of $145.
Should bulls reignite post-earnings and push the stock over $165 on the week, then I would not want to be short this name as bears will have lost any power they may have gained on Monday.