Adding a Long Option Position in Service Now

Yesterday after the market close ServiceNow (NOW) announced updated Q2 guidance of $237-242M which is lower than the expectation of analysts of $241.9M. The company is still growing at a strong pace but is facing currency issues since they have a significant portion of their revenue from outside of the US. The strong dollar may continue to impact their earnings, but the growth story is still in tact from our perspective, and this sharp decline presents an opportunity to take a position on their upside.

Over the past year the stock has moved from $53 to $83 before today's decline.

We think the current decline of 15% today is overdone, and we are taking a bullish position in the company through a new option trade. We are buying the November 2015 $75 Calls for $6.30 and selling the November 2015 $65 Puts for $5.40, for a net cost of $0.90 per set of contracts.

We pay $630 for each Call, take in $540 for each Put in collected premium, and the net trade will cost $90 per set of options. If the stock continues to move lower this trade works against us and we will be forced to buy the stock if it drops below $59.60. If the stock moves higher our Puts erode in value and our Calls increase in value, thus yielding profits on both sides of the trade.