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Microsoft earnings preview and spread trading examples.
2 min read

Microsoft earnings preview and spread trading examples.

Microsoft earnings preview and spread trading examples.

  • Microsoft reports today after the close.
  • Options are pricing a 3.8% move by Friday's close
  • The stock is up 2% on the day into the print.

Here's the expected move for this Friday's close (via Options AI)

First, as an example income generation, via a neutral price target. This is “selling the move” to both bulls and bears. A view that both buyers of calls and buyers of puts are over-estimating the size of any potential stock move. Premium (or income) received from selling options is kept if the stock stays within a range.

Income generating strategies / Neutral

As an example, with the stock price ~$214, the +202.50p/-205p/-220c+222.50 iron condor, 2.50 wide wings, with max gain between the short strikes, 205 and 220:

The buffer to the downside is slightly more than the upside versus the expected move. Those strikes can be adjusted in either direction if there's a slight bias either way. The max loss is beyond the long strikes, in this case, 202.50 and 222.50. A 15 wide area of max gain, and a 20 wide range before max loss.

Bullish Spreads

Of course earnings is not the only thing with the potential to move Microsoft stock as broader market conditions are already volatile. Looking beyond the election and selecting November regular expiration we can see how using spreads can lay off some of the elevated premium pricing. Here's an example with the stock ~$214:

The +212.50/-227.50 sells the strike in line with the bullish consensus at a credit of about $3.20 to help with the cost of the more than $9 at the money call. It risks 6 to make up to 9 on a move to 227.50 in the stock.

The -212.50/+197.50 credit put spread risks nearly 10 to make 5 but of course takes advantage of elevated volatility by being net short premium.

Bearish Spreads

The bearish price target in line with consensus isolating this week's expiration looks like this. The strategy depends on whether outright, or as a hedge, and also whether looking to "sell to the bulls" in the form of the credit call spread, or outright in the debit put spread. Here's an example with the stock ~$214:

Previously:

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