MSFT Beats Estimates, Soars, Presents New Stock Options Income Opportunities As Well As Gains
I cover what I’m trading how I’m looking at stocks and options. I can’t predict markets, stock prices or interest rates. Nobody can. All we can do is trade
By Donald E. L. Johnson
Independent Speculator
Microsoft beats on earnings.
Speculators who sold MSFT out of the money puts before earnings win.
Investors can sell MSFT covered calls, puts to generate income.
Traders who sold Microsoft (MSFT) puts or bought bullish MSFT bull call vertical spreads before the company beat analysts’ estimates in its earnings report after yesterday’s close are smiling.
There are a lot of ways to speculate on a company’s pending earnings reports and new guidance, as I reported .
My trade.
The least risky and simplest strategy was to sell way out of the money short term puts, which is what I did. On Monday, I sold the MSFT 2.11.2022 expiration $240 puts for $2.44 a share on a 100-share options contract. They’re trading at $0.76, for a $1.68, or almost 70% profit in two days.
Instead of taking that profit now, I’ll let the option expire worthless on Feb. 11 for a $2.44 per share profit. At this point, there is only a 4% probability (delta -.04) that the stock will fall below $240 on Feb. 11 and that the puts will be assigned to me. I’d like to buy MSFT at $240.
Of course, the trade could have gone the other way, as it appeared it might after MSFT reported its earnings. In last night’s after hours trading, the stock was down as much as 6% and the pre-market price on the puts option was well over $3.
Other bullish speculators could have bought the stock, done vertical calls spreads or bought short term or longer term calls. All of those trades look good today.
What to do now?
MSFT owners can just hold on knowing that Valuentum.com’s fair value estimate (FVE) for the stock is $342. MSFT looks over sold and poised for a rally on the charts.
Investors can sell MSFT 2.18.22 (23 days) $315 strike covered calls for $4.76, or a 24% annualized return on risk (RoR) or the $330 strike covered calls for $1.57, or about and 8% annualized return. There is about a 30% probability that the $315 strike calls will be exercised an a 13% probability that the $330 strike calls will be exercised. These probabilities fluctuate with the stock price.
Speculators looking to buy into MSFT at a 10% discount could sell MSFT 2.18.22 $270 puts for about $3.35 per share. For income traders, that trade would provide about a 16% annualized RoR. The delta on that trade is -.17, or about an 83% probability that the puts would expire worthless and would not be exercised. In other words, there is about a 17% probability that the stock would be assigned or sold to the seller of the puts.
LINKS:
CNBC.com
Covered Calls Advisor http://coveredcallsadvisor.blogspot.com
Covered Writer http://coveredwriter.blogspot.com
OptionsPlay.com
SeekingAlpha.com
StockCharts.com
StockRover.com
Beware.
Trading stocks and options is risky. I'm an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. I reserve the right to trade any of the listed stocks at any time. I own and/or have options on the stocks mentioned in this article.