Microsoft (MSFT) Earnings Updates

by CC October 21, 2016 11:08 am • Trade Updates

Yesterday we reiterated out thought that with Microsoft so close to its all time high (made in 1999) that it was likely we see a matched or new high soon. We also expected nostalgic ledes like this from the WSJ:

Shares of Microsoft Corp. jumped to an all-time high Friday in the wake of a positive earnings report, nearly 17 years after setting its previous high-water mark in the heyday of the dot-com boom.

The stock traded at $60.30 just after the stock market opened, up 5.3% and eclipsing its previous midday trading high of $59.97.

With options implying a move in either direction that included a move back to that 1999 high we detailed some options trade ideas for those looking to play for that new high or those already long the stock looking for a cheap hedge in case the stock was unable to. Here were the two trade ideas:


MSFT ($56.75) Buy the Dec 57.5/62.5 call spread for 1.30
  • Buy 1 Dec 57.5 call for 1.54
  • Sell 1 Dec 62.5 call at .24



Versus 100 shares of MSFT ($56.75) Sell the Oct 21st 60c vs buying the 55/52.5 put spread for .20
  • Sell 1 Oct 21st 60 call at .25
  • Buy 1 Oct 21st 55 put for .60
  • Sell 1 Oct 21st 52.5 put at .15

Let’s start with the hedge. This worked out well as the amount risked on an implied move higher was just .20 and the stock is up 2.50. As far as trade management, the only thing to clean up here is the Oct 60 short call. If the stock closes below 60 those calls simply expire worthless and the hedge is gone on Monday. If the stock creeps up to that level into the close you do not want to be called away in your stock, so if that looks like a risk during the day today those can be closed. Right now they’re offered at .10. Closing those now would mean the hedge cost .30 total. If the stock stays below 60 today those will slowly approach zero and may even be able to be close for a few pennies in a few hours. What you don;t want to do is let them stay open if the stock is at or above 60 because that means you come in on Monday with no position.

So now to the Bullish play. With the stock 59.75 this trade idea is worth about 2.40 vs the 1.30 initial cost. That’s a nice overnight profit but the potential if the stock makes a new high over 60 into the end of the year is greater. So the determination on this trade is simply whether the idea was a stock alternative type long into December expiration in which case you just be patient, or a defined risk long into earnings where profits can be taken now. The third option is to close the 62.5 calls and roll them to a sale of the Dec 60 calls. That basically take the risk of the trade down to next to nothing but with the chance to have a max value of the new position as 2.50 if the stock is above 60 on Dec expiration. That’s like closing the trade risk wise but extending the potential profit beyond the 1.10 currently. Obviously, with a short strike at 60 it’s not playing for a big move higher.