It’s the biggest week of the earnings season, with the Fed decision the same afternoon and Microsoft and Google reporting after the close. In episode 481 of Options Playbook, Brian Overby checks the butterflies he placed on Monday and adds a longer-term bullish trade in Amazon. He sets the scene. So far, about 83% of companies have beaten earnings estimates and about 63% have beaten on revenue, yet strong results haven’t been rewarded. Capital spending on AI is driving reactions instead; Meta has become the stand-in for that debate, and comments from Nvidia’s Jensen Huang about funding for “neocloud” companies like CoreWeave hit the sector. Money has rotated into healthcare and some real estate, where Brian notes Berkshire Hathaway has been building a large stake in homebuilder Lennar. Ten-year yields have dipped below 5%, and oil remains above $100. The Microsoft skip-strike butterfly, opened for about a 40-cent credit, is roughly unchanged at about 30 cents. Brian explains its profile: it profits from a drop or a modest rise, and only loses if Microsoft gaps well above the skipped strike. Because news before earnings (such as Microsoft’s announcement about staff buyouts) can disrupt these trades, he suggests placing skip-strike butterflies on earnings day itself. The Google open-wing butterfly, paid $3.50, is up about 50 cents after a pre-earnings run-up; he’d happily take a dollar profit before the report. For Amazon, he wants something longer term rather than another butterfly. With Amazon near $252.26, he buys the November 20 250 call and sells the 280 call, 23 days out, for $10.30. The 280 strike sits near the expected move, with about a 20 delta. His plan: if Amazon jumps through 280 after earnings, take the win. If it goes about halfway, to around 265, roll the short call down to about 270 to collect more premium. If the trade loses half its value, close it. And be realistic: a spread won’t trade for its full $30 value right after a big move, because the short call still holds time value. Time decay or a deeper move is needed. Key takeaways: – Strong earnings aren’t being rewarded; AI spending dominates reactions. – Place skip-strike butterflies on earnings day to avoid unrelated news. – Have a roll-down plan and a loss limit for long call spreads. – Spreads reach full value only with time or a deep move. Options involve risk. This episode is educational and not a recommendation. |
