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Home › Forums › Trading Earnings Live › Straddle Buy in MSFT
Microsoft. Boring, old Microsoft.
You’d think a super mature tech company wouldn’t move too much on earnings, right?
That used to be the case. Not anymore.
The earnings gaps have slowly continued to creep higher… both to the upside and downside. A >5% gap is not unheard of, and is actually now par for the course.
The weekly straddle is going for 2.45. With a strike price of 53.50, that’s an implied move of 4.5%.
Inmy opinion, the odds are very high we’ll see a bigger move than that.
So here’s the setup:
ET Live Order Ticket | ||||
Type | Asset | Duration | Strike | C/P |
---|---|---|---|---|
BTO | MSFT | 22 JUL 16 | 53.5 | Call |
BTO | MSFT | 22 JUL 16 | 53.5 | Put |
Total Debit: | 2.45 |
Now this is crucial— have standing limit orders to trade the stock around the position. So if MSFT runs higher, short stock. And if MSFT runs lower, buy stock. This will reduce the risk in the trade and allow you to profit with reversion.
So at a strike of 53.5 and a price of 2.5, that puts opex breakevens at 56 and 51. We want to trade stock just inside those levels.
For every straddle:
Short 60 shares MSFT @55.85
Long 60 shares MSFT @51.15
And we’ll completely cut risk if the stock goes 7%. That’s 3.75 points away.
Short 40 shares MSFT @57.25
Long 40 shares MSFT @49.75
Here are those levels on the chart. They just so happen to line up with support and resistance:
Now if we get filled on the stock, look to close out the stock around 53.50. This is a way to “scalp” the delta out of the straddle position.
MSFT beats on EPS and revs. It’s currently trding at 55.10 in the aftermarket. we need just a little more of a push to get us to the levels where we can hedge.
Sold short MSFT first round at 55.85 in the premarket.
Steve Are you closing the straddle today?
Taking profits on this straddle.
ET Live Order Ticket | ||||
Type | Asset | Duration | Strike | C/P |
---|---|---|---|---|
STC | MSFT | 22 JUL 16 | 53.5 | Call |
STC | MSFT | 22 JUL 16 | 53.5 | Put |
Total Credit: | 2.97 |
Also cover any short stock you may have on. So if you have the short on from 55.85, buy to close at 56.37