To The Moon

$Microsoft(MSFT)$ will be announcing their fiscal Q1 2024 result on 24 Oct after market close. There have been positive market anticipation on how Microsoft earnings would be like.

Market is expecting an increase in revenue and also the earnings per share for this fiscal quarter, but how would Microsoft stock price move with relation to the earning result release.

In this article I will be sharing how we can look at the option side of things, and what does the option data show us, and how Microsoft might move.

But this is based on the relationship of different data points, I think it would still be better to monitor the price action plus understanding options pricing and implied volatility is crucial for accurately interpreting and using this information for trading strategies.

Microsoft (MSFT) Option Implied Move

Implied Move shows the expected earnings percent move, calculated from the implied at-the-money straddle of the expiration nearest the earnings date.

As we can see that the option valuation for Microsoft is undervalued compared to the other stocks which are releasing their earning result on 24 Oct 2023.

This might means that its current market price (as determined by market supply and demand) is lower than what might be justified by historical data (which is based on 4-quarter historical average).

The option could be trading at a discount relative to what would be expected based on its historical performance.

Based on Microsoft's historical performance over the past quarter, it appears to be priced lower than it should be. I would see this as traders and investors might find this as a potential buying opportunity

But I think we should look for more option data before we can confidently look at what it means.

Microsoft (MSFT) Option Open Interest

As we can see that there might be some potential buying opportunities, I would take a look at how the option open interest stacked up.

MSFT has a total open interest of 147,374 contracts and a put-call ratio of 0.82 for options expiring Oct 27, 2023 (3 days).

Put Contract

10,522 put contracts traded for $7.60 per put option at $330 strike price, which is $0.68 in the money (i.e., $330 - $329.32). That means that the intrinsic value of those puts is $0.68, vs. the price paid by long owners of the puts of $7.60.

In other words, MSFT stock will have to fall by $0.68 from the strike price, or $329.32 (i.e., $330-$0.68), for a breakeven level for purchasers of these puts.

That means MSFT stock has to decline by 0% from 23 Oct (Monday)'s price of $329.32 before owners of the puts begin to make money.

Which we can see that After Hour trading, Microsoft has risen by 0.50%. So I do not think it is a good idea to go LONG on this Put contract.

Summary

Based on what I have just shared, I would think Microsoft have the potential to move higher than 2% after its earnings result in 24 Oct after hour trading.

We could be seeing more than 3% move in 25 Oct 2023 trading session if market is positive over what Microsoft deliver, only one thing to note would be the demand on the personal computing side. This might be a small contribution on the total revenue. But it is still something to look at.

It is also important to note that Microsoft might experience price volatilty if investors move the other way on their sentiment.

Appreciate if you could share your thoughts in the comment section whether you think Microsoft could experience a price volatility after its earnings result on 24 Oct 2023.

@TigerStars @Daily_Discussion @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.