Tuesday, August 27, 2013

salesforce.com (CRM) - Volatility Breaches Annual High into Earnings; Will Pattern of Big Moves Continue?

CRM is trading $42.42, down 2.3% with IV30™ up 6.4%. The LIVEVOL® Pro Summary is below.

salesforce.com, inc. is a provider of enterprise cloud computing and social enterprise solutions. The Company provides a customer and collaboration relationship management (CRM), applications through the Internet or cloud.

I found this stock using a real-time custom scan. This one hunts for elevated vols and CRM vol is now trading at an annual high. The firm does report earnings in two days (AMC),so elevated vol makes sense. It's the level of the volatility that caught my eye.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The one-year CRM Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see the stock is up from $37.27 a year ago, so a ~13% return. That's a bit behind the broader indices. What I do note is the stock movement after the latest three earnings releases. note the blue "E" icons represent an earnings date. We can see how the stock has moved in the days surrounding earnings for the last three cycles, below:

(1) $35-$40
(2) $41-$46
(3) $46-$37

These are non-trivial moves in relatively short periods of time and the last one was not good... There is pent up risk in CRM earnings based on the last three results (in my opinion) so the elevated volatility makes sense.

Let's turn to the one-year IV30™ chart in isolation, below.

I've drawn in that yellow horizontal line to better illustrate how high the current vol is relative to last year. We're at annual highs and I suspect volatility will continue to rise today, tomorrow and on the 29th right up to the earnings release after the close. In any case, the market could be very "reactive" to the earnings news whether it be good, bad or 'blah'.

Finally, let's look to the Options Tab (below).

Across the top we can see Aug30 weekly options are priced to 111.61% (that's all earnings). Sep monthly vol is priced to 49.16% while Oct is priced to 40.82%. Right now those weekly options are pricing in ~$3.50 move (look at the 42.5 dollar strike). I do note that CRM has that tendency to react of of earnings, and then continue to drift in the same direction for several days after the announcement. This will be an interesting one to watch.

This is trade analysis, not a recommendation.

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