One of technology’s high-fliers from 10 years ago, Citirix Systems (NASDAQ: CTXS), tagged a 52-week high today, though it remains about 30% below its own March 2000 peak. Today’s high bounce was spurred by a brokerage upgrade; MKM Partners upped its rating to “neutral” from “sell.” The firm also lifted its 12-month price target to $47 from $37, noting that their quarter is tracking in line with expectations and projecting a possible extension of its June promotion date, which could help build its customer base.
If March 10th sounds familiar, it’s because 10 years ago today, the NASDAQ Composite reached an all-time high of 5,132. Little more than 18 months later, it was trading at 1,329; a thundering drop of almost 75%. While the COMP has made a solid recovery since then (hitting a new 18-month high today, in fact), it is still a far cry away from its year-2000 peak.
MKM can only shift ratings between “buy,” “sell,” and “hold/neutral,” but options traders have a variety of different strategies that can be altered for different purposes. Whether an investor expects upside, downside, or even minimal movement at all, there is frequently a corresponding options strategy. Outlined below are two strategies: one bullish-to-neutral and one bearish, that can be used by fans (or critics) of the tech sector and Citrix shares.
Neutral-to-Bullish Option Strategy: Iron Condor
Investors who agree with MKM’s “neutral” outlook, at least for the next few months, could look at an iron condor strategy. A June-dated short iron condor essentially combines a bull put spread and a bear call spread (both credit spreads) would consist of:
- One short June 45 put
- One long June 40 put
- One short June 50 call
- One long June 55 call
A total credit of $2.45 (as of midday on Wednesday) can be collected for this four-legged spread trade. The maximum profit for this spread is $2.45, while the maximum loss is $2.55 (return on risk is roughly 96%). If CTXS is trading anywhere between $42.55 and $52.45 when these options expire, the iron condor seller will make money. Maximum profit is achieved if MKM closes between 45 and 50 at June expiration.
Bearish Option Strategy: Bear Put Spread
For those who think CTXS should have remained a “sell,” a bear put spread might be more to your liking. Consider buying the June 45 put and simultaneously shorting the June 40 put, paying a net debit of $1.50 for the spread. The maximum loss for this strategy is 100% of the debit paid, or $1.50, and the maximum potential gain is $3.50 per spread, for a return on risk of 233%. If CTXS is trading at or below $43.50 when the options expire, the spread buyer will make money.
Is Citrix fairly priced, or was MKM’s upgrade a bit premature? Does one of the options plays above look intriguing to you, or do you have your own idea? Let us know in the comments section below.
