With the ban and potential sale of TikTok in the news, cybersecurity holds a bit of my attention amid a volatile market, and CrowdStrike gives us an interesting setup.
Though cybersecurity stocks are very important, this stock continues to fade on the weekly and monthly charts. For this reason, I like the short call spread expiring in April.
The stock has a Composite Rating of 73, as you can see the IBD Stock Checkup. It ranks weaker than the strongest in the list, like Fortinet and Palo Alto Networks. So I do like a trade that allows us to short the bounces with defined risk.
The technical chart shows a steady fade as the stock rises into resistance. Options trading gives us the power to extract income out of the markets when directions are uncertain.
The trade is a short call spread at $1.95 premium credit. Try setting this up as a limit order if the volatility shows a premium that is substantially less than the price proposed.
The total spread between strikes at $5. The risk is $305 per short call spread, and the reward is $195 with the break-even price at $136.95.
The daily CRWD chart shows that we sit in downward trend, caught between the 50-day and 200-day simple moving averages. Increased volatility in the trading landscape allows us increased premiums in the direction of the trend.
Strategy Works Well In Down Or Mixed Trend
This is how we set up the trade.
Sell to open the CrowdStrike April 21 monthly 135 calls, and buy to open the CRWD April 21 monthly 140 calls.
The risk: The distance between strikes is $5 spread; we are collecting $195, so the risk to holding the position into expiration is $305 plus the cost of execution.
Identify the key chart levels. Congestion exists between 135 and 140, with a weak relative strength index of 22.
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Scenarios For CRWD Options Trade
What could happen:
- The stock moves within and potentially beyond the range but returns to rest below 135 by expiration, yielding the full profit.
- The stock moves into our 50% profit line — when the position is worth around 0.92 — and we exit the trade.
- The stock rallies and moves over 140 with volume for more than three days. This means we must exit because the chart is in a breakout.
Anne-Marie Baiynd is a 20-year veteran trader of stocks, options and futures and is the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." She holds no positions in the investments she writes about for IBD. You can find her on Twitter and Stocktwits at @AnneMarieTrades
