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TheStreet Open House

3 Different Bearish Views on CRM

Stocks in this article: CRMIBMVMWORCL

salesforce.com (CRM) is a core holding in many stock portfolios that are designed for growth. The problem is: There is no earnings growth that will be reported according to average projections by the analysts who are paid the big bucks to do that important analyzing. Go see for yourself! Look on the CRM stock page on Yahoo! finance. Peruse the CRM "Analysts Estimates" section. Read the earnings projected for this quarter. The average of the 40 analysts who follow CRM. You will find that projection being an uninspiring $0.31 per share. Notice then that CRM earned a non-whopping $0.32 per share in the same quarter in 2010. Yet, CRM is now valued almost 30 points higher since that one year ago. Hope springs into the clouds. But is this a forlorn hope?!?

Let's review the T3/OP video with Scott and Jill as they walk us through some levels on the charts and the fundamental concerns to the story.





I prefer tackling the downside when speculating on the price of CRM. I know that hope ends up in despair and that CRM is a huff and a puff away from getting crushed as any stock this year has suffered when not performing up to market expectations. Enter into this mix the fact that Oracle (ORCL) and IBM (IBM) are taking the company on in CRM's cloudy business! These are adversaries you do not want!

I have CRM technically positioned for another attempt to test the hands of the CRM longs. In addition, I have lots of new serious company as reflected in the total percent of traders that are now short CRM common stock. That total now exceeds 10% of the CRM float!

Trading at a ludicrous P/E ratio (over 600 but whose counting!) that belongs in the clouds, and not even showing growth to support that price earnings ratio, is one dangerous formula for a stock price disaster in the making. It certainly is a combination of statistics that deserves another round of playing CRM from the controlled risk short side via put options.

That trade is a bearish vertical call spread. This type of trade is normally medium in risk because it is biased (to the downside) as per price direction required for the trade to become profitable. However, due to the short time remaining to expiration, this trade I consider HIGH in risk! This trade is medium in reward potential because it is a hedged spread, thus capping the potential for gains.

Trades: Sell to open 3 CRM November 105 calls at $24.00 and buy to open 3 CRM November 125 calls for $10.00.

The total risk for the spread is $6 per spread. As always, I will monitor the trade on this site in the comments section below.

On Wednesday, October 19 at 6:00 p.m. EDT, TheStreet's Options Profits is hosting a webinar featuring Fred Ruffy of WhatsTrading.com. Join Fred as he outlines how to look at the "big picture", drill down into the sectors and ultimately find the individual options trade. Utilizing specific trade examples and case studies, Fred will show you how to select simple and advanced options plays. The back half of the webinar will include an interactive, exciting Q&A session.

Please email: jill.malandrino@thestreet.com to secure a slot for the webinar as space is limited and for the link to the presentation. IF you have already RSVPd, there is NO NEED to send another response. A spot has been reserved.

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