MSFT Analysis

Microsoft Corp. (MSFT)

MSFT publishes earnings on Thursday after the closing bell.

I shall use options that trade for the last time eight days hence, on Nov. 3.

Implied volatility stands at 23%, which is double the VIX, a measure of the volatility of the S&P 500 index.

MSFT’s IV stands in the 76th percentile of its annual range and the 88th percentile of its most recent broad movement.

The price used for analysis was $79.21.


The premium is 53.2% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

The zone of profit in the proposed trade covers a 2.50 move either way. The biggest immediate move after each of the past four earnings announcements was $2.41, and the average was $1.14. After eliminating the maximum and minimum post-earnings movements, the central tendency is $.97.

The expected move covering 85% of occurrences is $2.54, beyond the profit zone.

The bid/ask spread is 3.4%.

Decision for My Account

I am passing on MSFT. The expected move is beyond the profit zone, albeit slightly, and Zacks gives the company a 0.83 score in expectation of an earnings surprise. I like to keep it at 0.50 for below. The post-earns movements of the last year have been within the zone, so MSFT’s failings aren’t catastrophic by any means. Nonetheless, it’s a tech, and they are prone to surprises. Given the gap in the coverage, I’m staying out.

By Tim Bovee, Portland, Oregon, October 26, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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