BY ANDREW GIOVINAZZI

July 22, 2023

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Did you know Microsoft Corp (Ticker: MSFT) was a $20 stock for most of the 2000s and well into 2011-2012?

The last great act of Steve Ballmer was to go all in for Nokia for a Windows Phone. By then, MSFT was transitioning to cloud computing, and the rest is history after a crazy 10 year run.

MSFT is over 20% since the beginning of May. That’s $60 and a big move.

That big white candle is an amazing thing for a 2 Trillion Dollar company.

Let’s see how the vol is pricing these kinds of moves in a big Big Tech stock.

90 Day Realized Vol is 27%

At this point, the bid for volatility is real.

60 day implied vol is no bargain at this point. It’s at the highest point since the banking crisis, l and last I looked there’s no crisis in tech. However, it’s exactly where it was last earnings when MSFT jumped 10% and then proceeded to run another $20 over the next two weeks for a $40 move total:

The vol in general here is just fair and, if anything, probably a little cheap going into earnings. A 10% move could easily happen. Just remember whatever trade you pick, it needs to pay on a 10% move.

I don’t see post-earnings vol getting to less than 25% given the current conditions. I think a 1 x 2 put spread to take delivery of MSFT below $300 might make a decent trade, but it requires a crazy margin (i.e., real long stock risk but below $300).

I would use that with a $360 call on the upside. That trade would create a flatter vol profile but likely making money from $300 on up.

It’s a wild one, but MSFT is now a wild stock.

Questions about that? Leave a comment below!

To Your Trading Success,

AG