Find Out: A Bearish Trading Opportunity In a Cloud-Based Software Company

NASDAQ: TEAM | Atlassian Corporation Plc - Class A Ordinary Shares News, Ratings, and Charts

TEAM – Today’s article features a bearish trading opportunity in a cloud-based software company. Continue reading to find out all the details.

Atlassian Corporation (TEAM)  was one of the hottest company’s in terms of its growth and stock price.  But now, it looks like it’s losing steam and breaking down, setting it up for a bearish trade.

TEAM is a cloud-based software company which provides a variety of tools for content creation and project management. It has enjoyed great growth tapping into a tailwind of high growth sector and using the SaaS model which has helped propel the shares up some 70% this year alone.

But, it competes with companies such as Salesforce (CRM), and Service Now (NOW) to which it seems to be losing market share and crimping margins.

The last earnings report, at the end of July, showed top-line growth had slowed to 36% from 42% the year before and is expected to drop to 28% YoY over the next two quarters.  Bottom line EPS is expected to grow just 15%.

This is the second consecutive quarter of a deceleration.  With the stock priced for perfection, there is little room for disappointment or missteps in execution at this stage of the company’s development.

Management has stated it is consciously making the strategic choice to prioritize growth and market expansion over short-term profit. As a result, it invests heavily in R&D (48% of revenue) for product development and sales automation, all aimed at achieving high growth and rapid market expansion.

But, if the investments are starting to show less returns, the stock is vulnerable to a revaluation which would mean a sharp decline.

The chart has broken a long-term uptrend and now has broken below support around the $133-$135 level.

A good way to play this is using options is through a bear call spread.  This involves selling a near the money call and buying a further out of the money call for a net credit.

The attraction of this strategy is it can profit not only if the stock goes down but also simply if it does not go up.

For example, one can sell the 133 strike call and buy the 136 call with the Sept. 21 expiration for a net credit of $1.70.

As long as shares remain below $133, you keep the $1.70 of the premium collected.  Using a spread also limits your loss to just a maximum of $2.30.

Here is the risk/reward graph:

While the market is hungry for growth and cloud-based management tools have been hot, TEAM is losing steam and this offers a good way to make a bearish play.


.IXIC shares were trading at $293.27 per share on Wednesday afternoon, up $2.53 (+0.87%). Year-to-date, .IXIC has gained 18.44%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Option Sensei


Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...


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