Microsoft is up to report earnings after the the bell. Historically, they’ve been pretty consistent, consistently outdoing expectations. They’ve shown stability, with a notable exception in April during the AI hype.
When it comes to options, platforms like ThinkorSwim use the concept of IV (implied volatility) to anticipate stock movement after earnings. This IV has a characteristic drop right after earnings. The trick is to sell when it’s high and buy back when it’s low.
From the current data, we can deduce:
- IV is inflated and will see a decline post earnings.
- MSFT might experience a shift of around $15 in either direction.
The direction isn’t crystal clear, but with the info we have, it’s manageable.
Understanding the Earnings Iron Condor:
An Iron Condor strategy involves selling call spreads and put spreads simultaneously. You just need to pick the right strike prices. As of now, the option chain indicates an 80% probability that MSFT won’t drop below $315 or exceed $345. Most trading platforms have a feature that lets you execute this as a single trade.
Trade Overview:
SELL -1 MSFT Iron Condor ($345-$350 CALL/$315-$310 PUT)
CREDIT: $167
MAX LOSS: $333
A word of advice: It’s best to set these trades up just before market close on the day earnings are announced. This strategy has its risks, but the rewards can be promising. I generally target a 50% profit, but it’s always good to adjust based on market behavior.
For those who want a more conservative approach, consider an unbalanced Iron Condor. You can adjust your protection based on market predictions.
Stay informed and strategic, and until next time!
