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A Tech Review Highlights a Trading Opportunity

A Tech Review Highlights a Trading Opportunity

Traders can benefit from reading a variety of sources. Among the overlooked sources could be technical reviews. A recent example is a Techcrunch article, “Atlassian (Nasdaq: TEAM) has a portfolio of developer tools like Bitbucket, Jira and Confluence. It also has a marketplace with thousands of add-ons. But what it lacked was a development platform to call its own. Today, that changed when the company announced the Forge platform.

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  • “Forge will empower developers to more easily build and run enterprise-ready cloud apps that integrate with Atlassian  products,” the company wrote in a blog post announcing the new tools.

    The platform consists of three main components. For starters, it’s providing a serverless Function as a Service (FaaS) for developers to build hosted applications on Forge without worrying about the underlying infrastructure resources required to run the applications. The tool is actually built on AWS Lambda, AWS’s FaaS.

    This should allow more developers to get involved because it strips away a layer of complexity around managing infrastructure. “A FaaS platform also lets us eliminate common pain points such as authentication, identity, scaling and tenancy,” the company wrote in the blog post.

    The tool kit also includes a UI component called Forge UI for building user interfaces on the web or devices. Forge UI uses a declarative language that should make it easier to build user interfaces, and as with the function layer, the idea here is to simplify the process for users. Atlassian will deal with all of the security involved in building a user interface, something that many developers struggle with.

    “By abstracting away the process of rendering the UI layer, Forge makes stronger guarantees about how apps present or transmit sensitive data, such as user-generated content and personally identifying information,” the company wrote.

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  • The final piece is a command line interface (CLI) called Forge CLI. The idea here is to build continuous delivery pipelines with Bitbucket and run them from the command line. If you put all three of these components together, you have a pretty comprehensive development environment with tools for building functionality and designing user interfaces, while managing operations from a command line.

    There are lots of platform service offerings out there, so Atlassian faces some competition here, but for developers who planned on building apps for the Atlassian marketplace, this set of tools could prove useful and help push more developers to join in.”

    The daily chart shows the stock is below its recent highs.

    TEAM daily chart

    The weekly chart indicates the decline could be a pullback in a strong up trend.

    TEAM weekly chart

    A Trade for Short Term Bulls

    As with the ownership of any stock, buying TEAM could require a significant amount of capital and exposes the investor to standard risks of owning a stock.

    To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.

    Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.

    To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.

    This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.

    bull call spread

    Source: The Options Industry Council

    Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.

    This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.

    A Specific Trade for TEAM

    Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.

    When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.

     For TEAM, the January 17 options allow a trader to gain exposure to the stock.

    A January 17 $120 call option can be bought for about $6.42 and the January 17 $125 call could be sold for about $4.05. This trade would cost $2.37 to open, or $237 since each contract covers 100 shares of stock.

    The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.

    In this trade, the maximum loss would be equal to the amount spent to open the trade, or $2.37.

    The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.

    For this trade in TEAM the maximum gain is $2.63 ($125 – $120= $5; $5 – $2.37 = $2.63). This represents $263 per contract since each contract covers 100 shares.

    Most brokers will require minimum trading capital equal to the risk on the trade, or $237 to open this trade.

    That is a potential gain of about 110% in TEAM based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.

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