Microsoft Corp. (MSFT), Trending Stock Report

Yesterday we attempted a high-probability trade on Microsoft Corp. (MSFT). It was impossible for anyone to get filled at our limit price. That’s okay. We only want the trades we attempt on our terms. Today the story is the same, except the Fed announcement and the volatility crush are behind us. This allows us to make some adjustments and try again. If MSFT continues to behave the way it has since 2011, the stock rarely makes a big down move from the day after earnings for the following two trading days. Its worst down move in that time frame was 6% down in Feb 2018, also known as Volmageddon. It has one other big down move of 4% in April. At no other time during this time frame did MSFT move down more than 4% since 2011.

All of the other reasons that we highlighted yesterday still apply. The company is still trending in the news and social media. Volatility expectations are higher than they should be given MSFT’s past behavior, and we can still sell options at a strike price that is below recent technical support.

This Volatility Term Structure for MSFT shows us the implied volatility of the at-the-money options for each expiration. To learn more about Volatility Term Structure, click here. Volatility expectations did get cut in half just as we predicted they would yesterday. However, Friday’s expiration still has the highest volatility expectations of any term. If MSFT continues to behave the way it has after previous earnings reports, these expectations are still too high. This tells us that MSFT options prices continue to favor option sellers.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of MSFT’s price over the past year. While this graph is not as attractive as it was yesterday, you can see that the actual behavior (the blue histogram) still shows that MSFT did not make big moves as often as the modeled options prices expect.

It was impossible for anyone to get filled at our limit price on the MSFT trade idea yesterday. But conditions continue to favor option selling strategies for this asset. It’s a simple matter to make adjustments and reload a similar strategy today.

To get the specific details and prices on today’s trade idea, be sure to read today’s ODDS Online Daily Option Trade Idea.