CrowdStrike (CRWD) has experienced a staggering 40% decline from its highs in just 20 days. This dramatic drop highlights the significant impact of sentiment and emotions on a stock’s perceived value. Despite this decline, there’s nothing fundamentally wrong with CRWD as a company. It remains the market leader in cloud-based security and consistently beats earnings estimates quarter after quarter. This drop in such a short period seems overly exaggerated, and I’m on the lookout for signs of a bounce to initiate a bullish trade on CRWD. Also, it’s important to note that we are in the midst of earnings season, with major players like Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), and Meta (META) reporting earnings this week. The Nasdaq is expected to see significant swings due to these earnings reports, and I firmly believe in the adage, “a rising tide lifts all boats.” Therefore, Nasdaq’s price movement will likely play a crucial role in determining whether we’ll see a recovery in CRWD anytime soon. Note that the Nasdaq is under pressure and has already seen a 10% correction, indicating a negative sentiment. This trade is based on the assumption that mega-cap stocks will beat earnings estimates and cause a reversal in the Nasdaq. In addition to this assumption, I am also using some technical indicators to spot an entry on CRWD: RSI (Relative Strength Index): When the RSI drops below 30, it indicates an oversold position on a stock or ETF. After this happens, traders need to wait for the RSI to pop above 30 to take a bullish stance. At the time of writing, the RSI is at 21. So, it is a waiting game for me to take this trade. DMI (Directional Movement Index): The DMI is composed of three lines: DI+ (green line), DI- (red line), and ADX (blue line). When the DI- (red line) is above the DI+ (green line), it indicates a downtrend. However, when the DI lines start changing direction, it indicates a possible change in the current trend. Note that both DI- and DI+ are changing direction, which provides the first indication of a possible trend change. However, waiting for the RSI to confirm is critical before going bullish on CRWD. The Trade To take a bullish trade on CRWD, I’m using a trade structure called a “bull call spread.” To construct my bull call spread, I need to buy a $230 call and sell a $235 call as a single unit. It’s important to note that if one waits for confirmation from the RSI, the price of CRWD will likely be higher. However, various spreads can be constructed based on CRWD’s price. For example, once the RSI goes above 30 and CRWD is trading at $250, one could consider a 250-255 call spread as well. Here is my exact trade setup: Bought $230 call, August 30th expiry Sold $235 call, August 30th expiry Cost: $250 Potential Profit: $250 If CRWD trades at or above $235 by the expiration date, this trade could yield a return of 100% on the amount risked. With 10 contracts, this equates to risking $2500 to potentially gain $2500 DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
Using options to try to catch the bottom in CrowdStrike
