Investing with options: Microsoft earnings in focus

Investing with options: Microsoft earnings in focus

Options 10 minutes to read

Koen Hoorelbeke

Options Strategist

Summary: Microsoft's anticipated earnings release opens a realm of investment opportunities. Our latest piece provides an in-depth preview and reveals tailored options strategies for potential market movements. Don't miss out on actionable insights tailored for this earnings season.

Investing with options: Microsoft earnings in focus

Investors often contemplate the age-old question of "Where to invest next?". For those following the tech industry, Microsoft's upcoming earnings release presents an intriguing opportunity, especially when using options as a tool.

Microsoft, the tech behemoth, is anticipated to post robust numbers for the upcoming quarter. Analysts project an EPS of $2.65 and revenues nearing $56.19 billion, indicating a year-over-year growth of 13% and 8%, respectively. With its accelerating growth in cloud computing via Azure, soaring Xbox sales, and the growing acceptance of Surface devices, Microsoft has established itself as an industry leader. However, challenges like global shipping issues, formidable competition, and regulatory concerns can't be ignored. Yet, Microsoft's history suggests it's adept at surpassing expectations.

For options enthusiasts, this scenario offers a plethora of strategies. Below, we outline some of them while emphasizing the risks and rewards associated.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

1. Bullish outlook - buying call options:

Considering Microsoft's recent somewhat range-bound price movement, a potential breakout might be on the horizon.

Strategy: Buy a call option with an extended expiration.

Execution: BuyToOpen 1 20-Sep-2024 Call 280 @ $75.90 (Delta: 0.80).
Premium:
- Per share: $75.90 (debit)
Premium and risk:
- Premium cost: $75.90 x 100 (per contract) = $7,590
- Max risk: $7,590 (if Microsoft remains below 280 at expiry)
- Max reward: Significant (gains rise as Microsoft's stock price rises)
Breakeven point: $280 (strike) + $75.90 (premium) = $355.90
Rationale: This provides ample time for the stock to possibly appreciate, minimizing the adverse effects of time erosion (often referred to as "theta decay").

2. Alternative bullish approach - acquiring stock via ITM put options:

A less direct but viable method to acquire Microsoft shares involves selling in-the-money put options.

Strategy: Sell a put option.

Execution: SellToOpen 1 27-Oct-2023 Put 340 @ $12.55 (Delta: -0.65).
Premium:
- Per share: $12.55 (credit)
Premium and risk:
- Premium cost: Received = $12.55 x 100 = $1,255
- Max risk: Significant (if Microsoft's price falls considerably below the strike price)
- Max reward: $1,255 (if Microsoft is above 340 at expiry)
Breakeven point: $340 (strike) - $12.55 (premium) = $327.45
Rationale: Should the option be exercised, you'd essentially purchase the stock at a reduced price, factoring in the premium received.

3. Bearish sentiment - buying put options:

For those skeptical about Microsoft's immediate future, put options offer a hedge.

Strategy: Buy a put option with a longer expiration.

Execution: BuyToOpen 1 20-Sep-2024 Put 375 @ $53.85 (Delta: -0.64).
Premium:
- Per share: $53.85 (debit)
Premium and risk:
- Premium cost: $53.85 x 100 = $5,385
- Max risk: $5,385 (if Microsoft is above 375 at expiry)
- Max reward: Significant (gains rise as Microsoft's stock price falls)
Breakeven point: $375 (strike) - $53.85 (premium) = $321.15
Rationale: This provides flexibility in gauging the stock's downward movement over an extended period.

4. Neutral stance - covered calls:

Existing Microsoft shareholders can derive additional income by executing covered calls.

Strategy: Write a covered call.

Execution: SellToOpen 1 03-Nov-2023 Call 350 @ $3.05 (Delta: 0.23).
Premium:
- Per share: $3.05 (credit)
Premium and risk:
- Premium cost: Received = $3.05 x 100 = $305
- Max risk: Loss of stock's upward potential above $350, but keeps premium
- Max reward: $305 (if Microsoft is below 350 at expiry)
Breakeven point: Current Stock Price - Premium = $254.92 - $3.05 = $251.87
Yield:
- Yield over 14 Days: 1.20%
- Annualized yield: 31.29%

Rationale: This can generate short-term premium income, with a willingness to part with shares at the strike price.
Comparison with conventional stock purchase: If you already own Microsoft shares, this strategy allows you to earn a yield of 1.20% over 14 days, potentially annualizing to more than 30% if replicated successfully throughout the year.

Concluding Thoughts:

The strategies highlighted emphasize the importance of time. By selecting options with extended expirations, we give the underlying asset adequate time to realize our thesis, without being significantly impacted by time erosion. For those new to the terminology, think of "time erosion" as a diminishing factor affecting the option's value as time progresses.

As always, it's crucial to weigh both risks and rewards before implementing any strategy. Microsoft's earnings release, like all investment opportunities, offers no guarantees. But with careful planning and strategic choices, it provides a playground for both seasoned and novice options traders. And remember, whether before or after the earnings release, your risk appetite dictates the play.

Happy investing!

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.

Quarterly Outlook 2024 Q2

2024: The wasted year

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Macro: It’s all about elections and keeping status quo
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
FX: The rate cut race shifts into high gear
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Equities: The AI and obesity rally is defying gravity
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
Fixed income: Keep calm, seize the moment
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities: Is the correction over?
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

You can access both of our platforms from a single Saxo account.

Try the Demo

Open Account

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Investing with options: Microsoft earnings in focus

Koen Hoorelbeke

Investing with options: Microsoft earnings in focus

1. Bullish outlook - buying call options:

Strategy: Buy a call option with an extended expiration.

2. Alternative bullish approach - acquiring stock via ITM put options:

Strategy: Sell a put option.

Strategy: Buy a put option with a longer expiration.

4. Neutral stance - covered calls:

Strategy: Write a covered call.

Concluding Thoughts:

Related articles:

Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 05

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Manage consent

Details Cookies

Cookie Policy

Necessary

Investing with options: Microsoft earnings in focus

Koen Hoorelbeke

Investing with options: Microsoft earnings in focus

1. Bullish outlook - buying call options:

Strategy: Buy a call option with an extended expiration.

2. Alternative bullish approach - acquiring stock via ITM put options:

Strategy: Sell a put option.

Strategy: Buy a put option with a longer expiration.

4. Neutral stance - covered calls:

Strategy: Write a covered call.

Concluding Thoughts:

Related articles:

Share

Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 05

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Your browser cannot display this website correctly.