Software Stocks Are Getting Crushed. Here's a Trade

Bulls vs. Bears: Live Trading Session - February 26th, 2026

Key Concepts:

• IV Rank (Implied Volatility Rank): A measure of current implied volatility relative to its historical range, indicating whether volatility is high or low.
• Theta: The rate of time decay of an option's value.
• Short Put Spread: A bearish options strategy involving selling a put option at a higher strike price and buying a put option at a lower strike price.
• Short Call Spread: A bearish options strategy involving selling a call option at a higher strike price and buying a call option at a lower strike price.
• Defined Risk Trade: An options strategy with a capped maximum loss.
• Bid-Ask Spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask).
• Capex: Capital Expenditure - funds used by a company to acquire, upgrade, and maintain physical assets.

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Nvidia (NVDA) – Bullish Perspective

Despite a 4% drop in stock price following a strong earnings report, the trader maintains a bullish outlook on Nvidia. The decline is attributed to market reaction, which the trader deems less important than the underlying fundamentals. Nvidia remains a leader in Artificial Intelligence (AI), and its future prospects are tied to the continued growth of AI and related capital expenditure (capex) projects.

Trade Setup: A short put spread was initiated with the following parameters:

• Strategy: Sell the $182.50 put, buy the $180 put.
• Expiration: 22 days.
• Credit Received: $0.88.
• Probability of Profit: 71%.
• Max Profit: $0.88.
• Max Loss: $1.60 (if NVDA is below $180 at expiration).
• Theta: $0.52 per day.
• IV Rank: 18%.
• Overall Volatility: 50%.
• Bid-Ask Spread: 5 cents, considered favorable for execution.

The trader highlighted the tight bid-ask spreads (5 cents) as indicative of a good trading product, facilitating easy trade execution.

Gold (GLD) – Bullish Perspective

Gold has experienced a recent rally, driven by global geopolitical tensions (Iran, Venezuela, Ukraine) and a slight decline in US Treasury interest rates. Lower interest rates make gold more attractive as an investment alternative.

Trade Setup: A short put spread was implemented:

• Strategy: Sell the $65 put, buy the $63 put.
• Expiration: 22 days.
• Credit Received: $0.70 - $0.73.
• Probability of Profit: 70%.
• Max Profit: $0.73.
• Max Loss: $1.27.
• IV Rank: 59% (relatively high).
• Volatility Correlation: Gold’s volatility tends to increase with its price.

The trader noted the favorable risk-reward ratio and the relatively small capital requirement for this trade, making it suitable for smaller to medium-sized accounts.

Coca-Cola (KO) – Bearish Perspective

While Coca-Cola recently beat earnings estimates, the stock’s rally appears to be stalling. The trader believes the stock is “tired” and presents a bearish opportunity.

Trade Setup: A short call spread was initiated:

• Strategy: Sell the $82 call, buy the $83 call.
• Expiration: 22 days.
• Credit Received: Initially $0.23, adjusted to $0.33 - $0.35.
• Probability of Profit: 81%.
• Max Profit: Half of the spread width.
• Max Loss: $0.65.
• Theta: $0.30 per day.
• IV Rank: 28% (not very high).

The trader acknowledged the need for some “price discovery” in Coca-Cola, indicating potential challenges in obtaining optimal fill prices.

Salesforce (CRM) – Bearish Perspective

The trader expresses a strong bearish view on Salesforce, citing the shift towards AI-driven solutions. Companies are increasingly opting to build custom AI tools or leverage AI directly, potentially reducing demand for traditional software platforms like Salesforce. Despite a positive earnings report and initial price increase, the trader anticipates continued underperformance of software stocks.

Trade Setup: A short call spread was established:

• Strategy: Sell the $205 call, buy the $210 call.
• Expiration: Initially 22 days, but further expirations were explored.
• Credit Received: $1.52, adjusted to $1.60.
• Probability of Profit: 74%.
• Max Profit: Approximately $0.80.
• Max Loss: $3.40 (if CRM is above $210 at expiration).
• Theta: $1.93 per day.
• IV Rank: 56%.

The trader emphasized the value of using defined-risk trades like this one for practice in order execution and risk management. The trader aimed for a credit of approximately one-third of the spread width.

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Notable Quotes:

• “The what is a lot more important than the why.” – Emphasizing the importance of price action over fundamental analysis for a trader.
• “Software companies like Salesforce…companies are realizing that they can build custom tools using AI or have AI just solve the problems for them themselves.” – Explaining the rationale behind the bearish outlook on Salesforce.

Synthesis/Conclusion:

The session demonstrated a range of options strategies – short put and call spreads – employed to capitalize on perceived market opportunities. The trader prioritized trades with favorable risk-reward ratios, defined risk, and manageable capital requirements. A key takeaway is the emphasis on technical execution and risk management, even when holding strong directional opinions. The trader consistently highlighted the importance of implied volatility, bid-ask spreads, and theta in evaluating trade setups. The session underscored the trader’s belief that market reactions can be unpredictable, and a disciplined approach to options trading is crucial for success. The trades presented are not recommendations, but rather examples of how the trader applies their methodology in live market conditions.