My yesterday's article about an options strategy (namely, an iron condor), on Salesforce's (CRM) stock was met with enthusiasm and anxiety at the same time. In short, the readers are concerned with the high probability of losing money in the proposed trade, disregarding the beneficially high risk-return ratio. To remind, quarterly earnings are coming out tomorrow after close. The company's stock has not moved much today (perhaps, it is a calm before the storm, who knows?): If you are uneasy with the previous strategy I proposed, here is another one, more suitable, for you: (Source: optionsprofitcalculator.com) Note: option prices may change dramatically at the start of tomorrow's session. Essentially, I am proposing a covered straddle strategy (buy stock, sell straddle). It is perfect for current shareholders, who believe the options are overpriced due to extremely high implied volatility before the quarterly earnings' roll-out. The strategy is currently offering a 7.2% yield over a three-day period (a ~65% annualized return)! Here is the risk-return profile of this trade: (Source: optionsprofitcalculator.com) The problem with this strategy is that you, as the current shareholder, become double-exposed to the downside (you are long the stock and short the put, which makes you very vulnerable to the downside risk). We do not know what numbers Salesforce is going to show tomorrow, so I would not gamble with the downside. Hence, what you can do is limit your downside exposure by buying an OTM put option with a strike price close to the break-even level of the proposed trade (it is $73.70 at expiry). The nearest one is the $73.50 option, which currently costs about $1.71 per share (I took the ask price). Hence, the modified net premium received is $3.87, which corresponds to a 5% yield. Although it is smaller than the previous option, it is still quite a significant return, in my opinion. In the event you want to abolish your downside exposure outright, buy two put options for every one put you sell. In this case, you will both cover the downside exposure in the stock and the obligation before the put's buyer. In this case, your maximum risk is limited to $0.88 per share: + $5.85 - premium receivable from the sale of the straddle; - $3.15 - the difference between the current market price of the underlying and the strike of the puts purchased; - $3.42 - the cost of the protective puts (with the strike of $73.50); - $0.15 - the difference between the market price of the stock and the ATM puts sold. ________________ = ($0.88) per share Although not exactly a risk-free strategy, this particular option offers a 3.2% return at a risk of only 1.1%, fees and taxes excluded. This corresponds to a 2.9:1 risk-return ratio. Even though it is lower than in the case of my previous trade idea, it is more "sure": even if the stock moves by 10% or more in either direction, you are more likely to make money from this trade, as you are effectively bullish with it. In my previous trade idea, you are non-directional, which means you are making money only if the stock stays within certain boundaries. In this case, you are both non-directional and bullish. Which strategy do you like the most?