The biggest earnings week of the quarter is here — Microsoft and Google on Wednesday, Amazon on Thursday — and the market is wobbling. Semiconductors and tech are weak after Nvidia’s Jensen Huang said funding for “neocloud” companies like CoreWeave is drying up. Oil is over $100, the midterms are near, and CME FedWatch shows about a 10% chance of a hike at Wednesday’s Fed meeting. In episode 480 of Options Playbook, Brian Overby sets up earnings trades in Microsoft and Google. He starts with the chart. Microsoft, near $530, sits in a wide channel from about 360 to 554, with its moving averages lined up bullishly; he’d be a buyer near 474. Software stocks hit by AI fears are starting to recover — Adobe has bounced from about $200 to $260. For Microsoft he builds a skip-strike call butterfly in the October 30 expiration, the first after earnings. The expected move points to about 560. He tries 10-point and 7.5-point versions but can’t collect enough credit, so he settles on 5-point wings: buy the 560 call, sell two 565 calls, skip the 570 and buy the 575. The goal was a 50-cent credit; he places it at 40 cents and the market fills near 42. He treats it as an alternative to a short call spread: it makes the credit if Microsoft falls or stays put, makes more if the stock lands between 560 and 570, and only loses (up to about $4.60) if Microsoft finishes above 575 — nearly a two-standard-deviation move. For Google, near $320 and sitting on a small gap that he hopes acts as support, he’s more bullish. He builds an open-wing call butterfly in the same expiration: buy the 325 call, sell two 340 calls and buy the 347.50 call, for $3.50. The peak profit is at 340, the trade still makes about $4 if Google rallies through all the strikes, and the maximum loss is the $3.50 paid. He also notes that Meta’s earnings trade didn’t work: the stock jumped after the report, then sold off. Next up: Amazon on Wednesday. Key takeaways: – A skip-strike butterfly can replace a short call spread for a small credit. – Narrow the wings if wider versions don’t pay enough. – Open-wing butterflies give bullish exposure with a defined cost. – Know where your risk begins — here, a move of nearly two standard deviations. Options involve risk. This episode is educational and not a recommendation. |
