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This Recent IPO Could Be Set to Deliver Gains

This Recent IPO Could Be Set to Deliver Gains

IPOs, or initial public offerings, have not fared well recently. Uber is a high profile example and there are others. As The Street recently reported, “CrowdStrike (Nasdaq: CRWD) rose after a Nomura Instinet analyst initiated coverage of the cybersecurity company with a buy rating and a $65 price target.

Analyst Christopher Eberle said in a note to investors that the Sunnyvale, Calif., company was disrupting the endpoint security market with a “cloud-native security platform.”

Eberle said Crowdstrike’s proprietary technology, rapid customer adoption and open architecture will continue to drive greater adoption both with security and beyond.

CrowdStrike’s sales growth should continue to exceed expectations for “several years,” he said.

The company, which went public in June, has “one of the most attractive land-and-expand models in the enterprise software space,” Eberle wrote.

The stock has not delivered for investors since its IPO several months ago.

CRWD weekly chart

A new product could help the stock. Business Wire also noted,

“CrowdStrike Inc,  a leader in cloud-delivered endpoint protection, today announced the launch of Falcon for Amazon Web Services (AWS) to help secure cloud workloads. Falcon for AWS will be available in AWS Marketplace, allowing customers to easily purchase and deploy the solution with integrated metering and billing, while also optimizing their spend for elastic workloads.

CrowdStrike Falcon for AWS helps brings security teams the enhanced visibility and protection they need to defend against even the most sophisticated attacks. This solution delivers container security through a single agent running on the node that protects the instance itself as well as all containers running on it, allowing for comprehensive protection and substantial pricing efficiencies.

Falcon for AWS can be automatically deployed as new workloads are created, providing a dynamic solution that ensures continual protection across all workloads. Security teams that install Falcon for AWS on their instances will see an immediate time to value.

“Customers are looking for not only the most reliable threat protection but also modern, elastic, pay-as-you-go models that meet the dynamic needs of their businesses. With Falcon for AWS, we are bringing customers next-generation protection, allowing them to quickly and easily secure their workloads and scale their consumption as their business needs change,” said George Kurtz, chief executive officer and co-founder of CrowdStrike.

Falcon for AWS benefits include:

Protection – Additional coverage for Amazon Elastic Compute Cloud (Amazon EC2) instances and the containers they host, including customer managed container environments and those running in Amazon Elastic Container Service (Amazon ECS) and Amazon Elastic Kubernetes Service (Amazon EKS) for protection against even the most sophisticated attacks.

Speed – Accelerates cloud migration and adoption, allowing customers to seamlessly deploy and monitor their workloads at scale, enabling immediate protection and support for business agility. Falcon for AWS helps provide security teams visibility and protection, while enabling DevOps teams to continue operating without any friction.

Visibility – Continuous and comprehensive workload monitoring and discovery provide security teams full visibility and help to ensure nothing is missed and stealthy attacks are stopped, including container visibility that supports Amazon EC2 instances, Amazon ECS, and Amazon EKS containers and workloads running Windows and Linux, including Amazon Linux.

Metered billing  Customers pay for what they use and are able to accelerate procurement by leveraging AWS Marketplace Metering Service, and availability in AWS Marketplace.

Simplicity – CrowdStrike Falcon provides one console for all workloads, reducing overhead and friction.

Performance – Minimal impact on runtime performance with lightweight agent; no reboots, no scan storms and no invasive signatures updates required; and it can be pre-configured as part of the Amazon Machine Image (AMI).

Automation – Falcon for AWS allows cloud security teams to keep up with the dynamic and flexible nature of AWS workloads by offering seamless support for CI/CD deployment workflows, powerful APIs, and integration with AWS Security Hub.

“In a shared responsibility model, security of the workload is always a top priority and responsibility for our customers, who are constantly looking for new and innovative ways to help secure their cloud workloads, which are increasingly deployed on container environments like Amazon ECS and Amazon EKS,” said Dave McCann, vice president, AWS Marketplace, Amazon Web Services, Inc.

“We are delighted to be working with CrowdStrike to help our millions of AWS customers easily find, procure and provision new secure solutions like Falcon that allows them to confidently innovate at cloud speed.”

In addition to Falcon for AWS, CrowdStrike also supports Amazon GuardDuty, which protects against vulnerabilities, malicious activity, and unauthorized behavior, and participated in the launch of AWS Security Hub. CrowdStrike is an AWS Partner Network (APN) Advanced Technology Partner that has achieved AWS Security Competency status.”

This news comes as the stock could be bottoming.

CRWD daily chart

A Trade for Short Term Bulls

As with the ownership of any stock, buying CRWD 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 CRWD

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 CRWD, the December 20 options allow a trader to gain exposure to the stock.

A December 20 $60 call option can be bought for about $4.61 and the December 20 $62.50 call could be sold for about $3.60. This trade would cost $1.01 to open, or $101 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 $101.

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

For this trade in CRWD the maximum gain is $1.49 ($62.50 – $60= $2.50; $2.50 – $1.01= $1.49). This represents $149 per contract since each contract covers 100 shares.

Most brokers will require minimum trading capital equal to the risk on the trade, or $101 to open this trade.

That is a potential gain of about 47% in CRWD, based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.