CrowdStrike (CRWD) on surface level may seem like a no-brainer investment. With artificial intelligence and other advanced innovations accelerating at breakneck speed, rising emphasis must be placed on cybersecurity. After all, it takes just one incident to ruin years, if not decades, of hard-earned trust and reputation. Yet CRWD stock is one of the biggest losers in the market.
Still, a major overhang now rests somewhere in the rearview mirror. Just a few weeks ago, one could make the argument that smart money sentiment was overwhelmingly negative for CRWD stock. In particular, the options flow screener — which focuses exclusively on big block transactions likely placed by institutional investors — revealed that on the Feb. 12 session, net trade sentiment fell to almost $36.2 million below parity.
If that wasn’t bad enough, the transactions that were most bearish were debit-based put options. In other words, CRWD stock had to fall below defined thresholds for the underlying wagers to be profitable. While such transactions weren’t necessarily encouraging for the bulls, the good news was that a bulk of these bearish puts expired recently on Feb. 20.
Even better, the volatility skew for the next weekly options chain (expiring March 6) shows relatively calm risk positioning. That’s significant because CrowdStrike is scheduled to release its earnings report on March 3 after the market close.
By definition, the skew reveals implied volatility (IV) — or a stock’s potential range of motion — across the strike price spectrum of a given options chain. Basically, this screener showcases the surface-area distortion of volatility space, allowing retail traders to see how the smart money is positioned in terms of risk management.
To use a soccer analogy, CrowdStrike stock is structured in a balanced 4-4-2 formation. There’s nothing really unique about how the sophisticated market participants are treating CRWD — and that’s an important signal given how poorly the security has performed as of late.
Establishing the Trading Parameters of CRWD Stock
While we have an understanding of smart money positioning, we still need to find out how this data translates into actual price outcomes. For that, we may turn to the Expected Move calculator, which runs a proprietary mathematical formula to establish a realistic high-low dispersion. For the March 6 expiration date, CrowdStrike stock is expected to land between $351.33 and $410.87.
Mathematically speaking, we’re talking about a 7.81% move in either direction from the current spot price. However, what we’d like to ascertain is, which half of the pricing envelope CRWD stock is likely to land upon expiration.
If volatility skew is a soccer team’s starting formation, then expected move calculations represent the safe passing lanes that are available (which typically involve either a pass back to the keeper or to one of the defensive wings). However, soccer — especially at the professional level — is a dynamic game. In other words, some of the best opportunities are found in three-dimensional space.
If you watch a game, you’ll notice that players aren’t always kicking the ball directly to each other. Instead, they’re passing the ball into space, anticipating that their teammates will read each other’s intentions and create dangerous scoring opportunities.
While the Expected Move provides an excellent reference point, the opportunity in CRWD stock doesn’t just come from observing what everybody else is observing; rather, we’re going to attempt to anticipate what is not apparent now — but could be apparent later.
Effective options trading (on the debit side) is like playing the role of the attacking midfielder. It only looks like you’re passing the ball into an empty space. However, what you’re really doing is setting up one of your teammates to score on a quick run.
Trading CrowdStrike Stock Multidimensionally
One of the straightforward ways to trade CRWD stock multidimensionally is, in addition to volatility skew and expected move, to utilize Barchart’s Seasonal Returns heatmap. This screener shows CrowdStrike’s statistical performance conditioned by seasonality. This way, we’re not just looking at a static formulation but rather adding context to our analysis.
It should be noted that March tends to be a statistically poor month for CRWD stock. However, it’s worth pointing out that during the positive months, the returns have been massive. I’m going to speculate that because CrowdStrike has already suffered hefty losses, the market may be more receptive to a better-than-expected print from the company when it releases earnings.
In particular, I’m tempted by the 402.50/410 bull call spread expiring March 6. Should CRWD stock rise through the $410 strike at expiration, the maximum payout would be over 111%. Breakeven lands at $406.05, helping to improve the trade’s probabilistic credibility.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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