$SMCI Earnings: Iron Condor Strategy Assures Ease

$SUPER MICRO COMPUTER INC(SMCI)$ is set to release its earnings report after the market closes on August 6th. Analysts expect the company to report Q4 2024 revenue of $5.293 billion, up 142.27% year-over-year, with an expected EPS of $7.83, marking a 128.31% increase.

SMCI has surged over 140% this year, driven by its strong position in the AI server market, significantly outperforming AI stocks like Nvidia.

However, after a disappointing Q3 report, its stock dropped 14% on the announcement and has fallen over 20% in the past 4 months.

Previously, SMCI’s Q4 and full-year guidance exceeded market expectations, forecasting Q4 revenue between $5.1 billion and $5.5 billion, with adjusted EPS in the range of $7.62 to $8.42.

Bloomberg consensus suggests SMCI’s product revenue will continue to grow robustly in Q4.

Specifically, core server and storage systems are expected to generate $5.076 billion, a 37% increase quarter-over-quarter, accounting for 96% of total revenue.

Subsystems and accessories are projected to bring in $221 million, up 46% quarter-over-quarter, making up 4% of total revenue.

As SMCI's earnings report approaches, key areas of focus will include the DLC project, OEM system margins, collaborations with Elon Musk's xAI, new AI product launches, and working capital needs.

Stock Performance on Earnings Days

Looking at the past 12 quarters, SMCI’s stock has risen about 75% of the time on earnings release days, with an average movement of ±12.8%. The biggest drop was -23.4%, and the largest gain was +31.2%. This year, the stock dropped 14% and then gained 3.5% on earnings days.

Currently, the implied volatility for SMCI is ±13.4%, suggesting the options market expects a ±13.4% in the stock price. This is higher than the ±10.8% average movement from the previous four quarters, indicating the options might be overvalued.

To navigate the upcoming earnings report, investors might consider the Iron Condor options strategy.

What is an Iron Condor?

The Iron Condor involves four options: two call options and two put options. It's used when you expect the stock price to stay within a narrow range or to see significant price movement. This strategy limits both risk and profit. Named for its profit-loss diagram resembling an eagle, the Iron Condor strategy involves:

Bullish Iron Condor: For investors expecting significant price movement (up or down). This strategy uses four options with equal price intervals, with a 1:1:1:1 ratio. Maximum profit occurs if the stock price is above the highest strike price or below the lowest strike price at expiration.

Bearish Iron Condor: For investors expecting minimal price movement. This strategy also uses four options with equal intervals, with a 1:1:1:1 ratio. Maximum profit happens if the stock price stays between the two middle strike prices at expiration, yielding the net premium received.

How To Use Bearish Option Strategy in Trading

A Bearish Iron Condor for $SUPER MICRO COMPUTER INC(SMCI)$

For a bearish Iron Condor on SMCI, you can set up the strategy as follows:

• Step 1：Sell a SMCI put with a strike price of $540 (expiring on August 9) for a gain of $1926 (19.26×100) .

• Step 2：Buy a SMCI put option with a strike price of $500 (expiring August 9) and pay $1070 (10.7 x 100).

• Step 3：Sell a SMCI call option with a strike price of $700 (expiring August 9) for $1400 (14 x 100).

• Step 4：Buy a SMCI call option with a strike price of $740 (expiring August 9) and pay $747 (7.47×100).

After completing these trades, you collect a total premium of $1,509.

If SMCI’s stock ends up between $540 and $700 at expiration, all options will expire worthless, and you'll keep the entire premium as profit—$1,509 in this case.

With SMCI currently priced at $623.5, this strategy allows for a 13.3% downside and a 12.2% upside, as long as the stock stays within this range, you’ll make a profit.

In this scenario, the bearish Iron Condor bets on SMCI's stock staying stable without major fluctuations. Statistically, large price swings are rare, making the Iron Condor a high-probability strategy for smaller gains. Ideally, set your strike prices far from the current stock price to minimize potential losses.