1. Strategy: The strategy used here is a Broken Wing Call Butterfly, which is a type of options strategy that combines two vertical spreads to create a range where the trade can profit, while eliminating the risk on one side of the range. The strategy is designed to profit from a rise in the underlying asset's price but up to a certain level.
2. Trade Setup: The setup involves three call options on Salesforce:
• Buy to Open 1 CRM 01-Sep-23 215 Call
• Sell to Open 2 CRM 01-Sep-23 210 Call
• Buy to Open 1 CRM 01-Sep-23 207.5 Call
3. Premium and Risk: The net premium received for establishing this trade is $101 per contract. The maximum risk, or the most you could lose on this trade, is $149 per contract. This maximum loss occurs if the price of Salesforce at expiration is above 215.
4. Breakeven Point: The breakeven point is 213.51. Any price of Salesforce at expiration below this point will result in a profit from the trade.
5. Implied Volatility (IV) Rank: The IV Rank is 50.70
6. Days to Expiration (DTE): The options involved in this trade are set to expire in 3 days.
The goal of this strategy is to collect the premium, while the underlying (CRM) continues to move downward. As we collect $101,- on a €241.68- (= +/- $261,5-) margin requirement over a period of 3 days, this yields us approx. 38.6% return in 3 days.
If the price of Salesforce is 210 at expiration you will get the maximum profit of this trade ($351 per contract)
In case the Salesforce price goes up and opposite of what we expect, and goes beyond the breakeven point our strategy will result in loss. Depending on the time where we are, we can exit early and limit our losses. If you do nothing and the price goes above the 215 long call, this strategy will result in the maximum loss.
