MSFT - Earnings Preview & Comps

Discussion in 'Trading' started by livevol_ophir, Apr 22, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    Details, prices, skews, vols, straddles, stats here:

    MSFT is trading 31.18 with earnings AMC today.

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    The company dipped after the open and vol increased but the trend quickly reversed with a small pop in stock price and a corresponding drop in front month vol that actually put it down on the day. The Tick Chart is included. Stock on the top, vol on the bottom.

    <img src="">

    The Options Tab snap (in the article) demonstrates a couple of things:
    1) The front month ATM straddle is worth $1.64
    2) The front monnth vol (24) is just three points above the second and third months (21).

    The Skew Tab snap from today and from the day of earnings in the last cycle (1-28-2010) are included (in the article). Note the seven point divergence in front to second month vol in the last cycle relative to the somewhat muted vol diff this time.

    MSFT followed a consistent earnings pattern for five consecutive cycles starting with the 7-17-2008 cycle and ending with the 10-23-2009 cycle. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner each time. The Earnings & Dividends Tab for those cycles is included with the relevant values highlighted (in the article).

    The next two earnings cycles were the opposite. A straddle purchase was a win for the one day holding period. The Earnings & Dividends Tab snap for those cycles is also included (in the article).

    Looking more carefully at the earnings cycles we can see a clear patten in vols. Namely, the vols have generally decreased over the last 8 quarters (like the rest of the market). The vol stats per earnings cycle are included (<a href="">here</a>).

    The vol average for the five cycles when a sale was a winner was 50. Excluding the 10-23-2008 cycle (when the world was exploding), the average is still 43. The average for the last two cycles was just 34. Today, it's 24.

    Keep in mind that May has the longest options cycle possible as the 1st is a Saturday. That makes options worth more ceteris paribus.

    This is trade analysis, not a recommendation.

    Details, prices, skews, vols, straddles, stats here:
  2. All that you said, did you give a buy or sell recommendation on MSFT ?
  3. livevol_ophir

    livevol_ophir ET Sponsor

    I'm not allowed to give recommendations. :confused:
  4. Well, you can always say where you think MSFT stock is headed. Those experts always give target prices.

    So now that you know MSFT's earnings, what price range do you think the stock is worth?
  5. livevol_ophir

    livevol_ophir ET Sponsor

    I'm not an expert - I'm just a floor trader...
  6. Those who went long the May 32 calls today are probably going to feel some pain this friday.

    They hit the upper 60s this afternoon.
  7. livevol_ophir

    livevol_ophir ET Sponsor

    Yeah, not looking for call buyers right now - lose to vol and delta...