JD’s 2 Sigma Snap spotted a forgotten poultry stock… and the stock went GANGBUSTERS!
Hey everybody, JD here with your Rational Trader Market Analysis daily.
Today we’re keeping it short and simple with one trade in Salesforce (CRM).
Why Salesforce Fits
Salesforce reports earnings after the close, and the stock is approaching two standard deviations above its mean. That’s what I call the “Two Sigma” level — a sign the stock is stretched away from its recent average.
When I see that, I’m thinking mean reversion. And when the options market is cooperating — in this case, with premiums that are very rich — the call credit spread is the tool of choice.
The Setup: A Call Credit Spread
Here’s how I’m structuring it:
- Sell the $295 call
- Buy the $305 call for insurance
Both expiring this Friday.
This takes in about 50 cents in premium. It’s a classic mean reversion cash machine trade: if the stock stalls or reverts lower after earnings, we keep the credit.
And if Salesforce does surprise to the upside, the $305 call caps the risk. Defined loss, defined gain, and quick expiration.
Why It Works
This kind of spread has been working all quarter in an overbought market. It’s not flashy, but it’s effective. Simple math, clean risk, and trades that close out fast.
That’s it for today, folks. I’ll be back tomorrow with another mean reversion cash machine trade.
Talk soon,
JD
The Rational Trader
