This summary text is fully AI-generated and may therefore contain errors or be incomplete.
The potential trading opportunity with Microsoft stock involves utilizing a calendar spread strategy to capitalize on the stock’s recent pullback and potential sideways movement.
Strategy Overview
This strategy involves selling a short-term option and simultaneously buying a longer-term option with the same strike price, reflecting a neutral outlook.
The net cost for the trade is $195 per spread, with a maximum potential loss of $195 and an estimated maximum profit of $875, subject to changes in implied volatility.
Break-Even Prices
- The break-even prices for the trade are estimated at around 414 and 475, with potential variations based on changes in implied volatility.
Risk Considerations
Given the upcoming earnings announcement for Microsoft, the options market is pricing in a potential 5.6% move in either direction, adding a layer of risk to the trade.
It’s crucial to acknowledge the inherent risks associated with options trading and consider setting a profit target of 30% and implementing a stop loss if Microsoft stock breaks through either 410 or 480 as prudent risk management measures.
Thorough due diligence and consultation with a financial advisor are essential before making any investment decisions.
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