Both $Alphabet(GOOG)$ and $Microsoft(MSFT)$ miss the consensus in their Q3 earnings, shares dips more than 6%. For traders, volatility means opportunity.
Unlike $Netflix(NFLX)$ issued last week, I believed that its rising wave was continuous, due to the confirmation of its financial report and recent transactions. (For more details: Netflix has risen by 14%. Can I still get on the bus?)
Does the big bip of Google and Microsoft also have continuity?
Personally, I don't think so.
First, Microsoft and Google, as pivotal weights of market indices, are not that volatile. Hedge funds' allocation requirements will also make them increase their positions when they fall sharply.
Second, the market has priced-in most tight monetary policy expectations. Federal Reserve also intends to release dove infomation and try to ease the tense market.
However, does this mean these two big tech will rebound soon after the sharp drop?
It's also quite difficult.
From the level of individual stocks, the situation for Google seems to be worse.
It seems that the weak advertising business is an industrial and whole macro economy problem.Therefore, it is normal for the business to fall short of expectations. Microsoft is more affected by the exchange rate, but at least its income statement has exceeded expectations. The only thing that surprised the market is the slowdown of cloud business.
From the comparison of cloud business alone, Google has not completely grasped Microsoft's ability. If Microsoft's cloud business also reflects the changing needs of the industry, it is only a matter of time before Google's cloud business slows down.
It is difficult to expect a short-term recovery. Therefore, my base case is that it is difficult to have large volatility.
So how do you trade these two companies? Consider the following
First, take advantage of the sharp drop to sell OTM put.
For example, if Google drops to $97, Sell naked Put under $90 or even under $85 between mid-November or mid-December to earn premiums.
For example, if MSFT drops to $235, Sell naked PUT below $210 in mid-November or mid-December.
Second, vertical spread strategy. Either Call Spread or Put Spread will do.
Take Put Spread as an example, that is, on the basis of selling naked put above, buy a Put with deep OTM for protection.
For example, selling $85 Put in mid-December and buying $80 Put in the same period, and it will only cost $500 margin.
Third, Iron Condor strategy. this is a both side vertical spread, Call and Put spread are done at the same time.
Of course, you can also choose to go down the Put side when you fall first, and go down the Call side when you rise again. But it needs luck.
Happy Trading!
Comments