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Earnings Trader
Collect the Biggest Option Payouts Every Quarter

January 30, 2024

Microsoft (MSFT) is due to announce earnings today after the closing bell.

Microsoft (MSFT)

Microsoft (MSFT) is due to announce earnings today after the closing bell.

The stock is currently trading for 407.48.

  • IV Rank: 58.5
  • IV: 40.4%

Expected Move for the February 9, 2024, Expiration Cycle: 387 to 428

Knowing the expected range, I want to place the short call strike and short put strike of my iron condor outside of the expected range, in this case outside of 387 to 428.

If we look at the call side of MSFT for the February 9, 2024, expiration, we can see that selling the 445 call strike offers a 90.57% probability of success. The 445 call strike sits just above the expected move, or 428.

COI_ET_013024_MSFT_bearcall.png

Now let us move to the put side. Same process as the call side. But now we want to find a suitable strike below the low side of our expected move, or 387. The 372.5 put, with a 91.09% probability of success, works.

COI_ET_013024_MSFT_bullput.png

We can create a trade with a nice probability of success if MSFT stays within the 72.5-point range, or between the 445 call strike and the 372.5 put strike. Our probability of success on the trade is 90.57% on the upside and 91.09% on the downside.

Moreover, we have a 9.2% cushion to the upside and an 8.6% margin of error to the downside.

If we look at the earnings reactions since 4/18/1996, we can see that there have been only a few breaches of 6% to the upside or downside after an earnings announcement. That being said, we have seen some decent moves, so, as always, make sure your position size is at reasonable levels.

Net Change – At the Opening Bell

COI_IT_013024_MSFT_open.png

Full Bar – Price Movement Throughout the Day

COI_IT_013024_MSFT_close.png

If one wanted to make a trade, below are the potential strikes that make the most sense or are at least a starting point for a trade.

Here is my trade:

Simultaneously:

Sell to open MSFT February 9, 2024, 445 calls

Buy to open MSFT February 9, 2024, 450 calls

Sell to open MSFT February 9, 2024, 372.5 puts

Buy to open MSFT February 9, 2024, 367.5 puts for roughly $0.65 or $65 per iron condor (adjust accordingly, prices may vary from time of alert).

COI_ET_013024_MSFT_price.png

Our margin requirement would be roughly $435 per iron condor. Again, the goal of selling the MSFT iron condor is to have the underlying stock stay below the 445 call strike and above the 372.5 put strike immediately after MSFT earnings are announced.

Here are the parameters for this trade:

  • The probability of success – 90.57% (call side) and 91.09% (put side)
  • The maximum return on the trade is the credit of $0.65, or $65 per iron condor
  • Max return: 14.9% (based on $435 margin per iron condor)
  • Break-even level: 445.65 – 371.85.

As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

Andy Crowder is a professional options trader, researcher and Chief Analyst of Cabot Options Institute. Formerly with Oppenheimer & Co. in New York, Andy has leveraged his investment experience to develop his statistically based options trading strategy which applies probability theory to option valuations in order to execute risk-controlled trades. This proprietary strategy has been refined through two decades of research and real-world experience and has been featured in the Wall Street Journal, Seeking Alpha, and numerous other financial publications. Andy has helped thousands of option traders learn and implement his meticulous rules-driven options trading strategies through highly attended conferences, one-on-one coaching, webinars, and his work as a financial columnist. He currently resides in Bolton Valley, Vermont and when he’s not trading, teaching and writing about options, he enjoys spending time with his wife and two daughters, backcountry skiing, biking, running and enjoying all things outdoors.