Investors focused on technology and A.I. last year were rewarded with an eye watering 53% return on the Nasdaq-100 Index. However, CrowdStrike (CRWD) , a constituent of the Nasdaq-100, returned nearly quadruple that in 2023 and is a favorite by analysts for further upside this year. This is the type of hype that concerns me and I see a crowded trade that is at risk of a pullback as it reaches its all-time highs. If we look at a chart of the cybersecurity stock, it recently printed within 3% of its all-time highs set back in 2021. This $298-$300 level will likely act as a target price and psychological ceiling for the strong rally we’ve seen since the start of 2023. Additionally, its recent push higher has been coupled with negative divergence with momentum. Higher high’s in price are no longer confirmed by higher highs in momentum, this is a signal of a potential reversal when coupled with a major resistance level. More importantly, the biggest concern comes from evaluating the fundamentals. CRWD is no doubt one of the fastest growing companies in a sector that is seeing accelerating demand. As cybersecurity needs grow globally, CRWD is positioned at the forefront of this industry. However, now that the stock trades at over 76 times forward earnings while EPS and revenue growth is expected to slow below 30% year-over-year, these valuations are hard to justify. Lastly, CRWD is rated a buy by nearly every single analyst on the street except one, which makes it likely a crowded trade that is further at risk. The trade Since CRWD has such a strong business, despite the concerning valuation, my view is fade it with a neutral rather than outright bearish view. We can take this stance using by selling a call vertical and collecting options premium. I’m selling the March 1 st $285/$310 call vertical for a $9.88 credit. To breakdown this trade I’m: Selling the March 1 st $285 Call @ $15.68 Credit Buying the March 1 st $310 Call @ $5.80 Debit This type of trade structure allows me to collect $988 per contract in profits if CRWD is below $285 on the March 1 st expiration, while risking $1,512 per contract if CRWD is above $310 at expiration. DISCLOSURES: (None) 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.
