Written by Ophir Gottlieb
PREFACE
One options strategy in particular for Microsoft Corporation (NASDAQ:MSFT), when employed with care, has been very successful.
Microsoft is often times the forgotten giant of technology. While Facebook and Amazon.com get the headlines, Microsoft Corporation (NASDAQ:MSFT) is still substantially larger than both in market cap and the stock continues to perform well.
But, there is an interesting phenomenon going on in Microsoft Corporation shares during earnings results that has an impact on a common option strategy. The key here is not to guess stock price direction movement.
It's about finding calm, low stress stocks, and finding the strategies that created a high percentage of winning trades, gaining profitability slowly, while avoiding unnecessary risks. Here's a look at how an options trading strategy in Microsoft that would normally be quite risky can be applied with less risk but still strong results.
STORY
Selling puts is one of many option trading strategies that can be employed to take advantage of a bull market. For Microsoft Corporation (NASDAQ:MSFT), it has actually been a winning trade if pursued even during earnings releases. Here's how we can see it explicitly with the CMLviz.com option back-tester Trade Machine.
After the set up, we get these results. Again, we're just looking at trading the dates surrounding earnings releases.
The image above summarizes a back-test:
* Sell Puts
* Without regard to earnings
* Trade every 30-days
* Test the strategy for two-years
Selling puts has been a winner in Microsoft Corporation. But, here's the real analysis.
We want to examine how well this strategy would have done if we eliminated that rather large risk of earnings. That is to say, if we sold puts every 30-days in MSFT, but every time earnings approached, we closed the strategy (held no position), then started the strategy again after the volatility of earnings had ended. Here are the results:
If we look closely we can see that the short put strategy turned out to be a bigger winner if we eliminate earnings dates but, of course, it has less risk. In this case we find a nice result -- a profitable option strategy that removes the risk of earnings and delivers stronger results.
Here's the difference explicitly:
To do this analysis yourself for any company, here is a two minute demonstration movie for Microsoft Corporation (NASDAQ:MSFT):
WHY THIS MATTERS
Returning to the idea of back-testing again, there's actually a lot less 'luck' and a lot more planning in successful option trading than many people know.
But it's not about trying to guess which stocks will go up or down.
What the back-tester allows us to do is find calm, low stress stocks or ETFs (like SPY, QQQ, etc), and find the option strategies that have created a high percentage of winning trades, gaining profitability slowly, while avoiding unnecessary risks - specifically, avoiding earnings.
In a six minute demonstration video, your entire view of the options world and what 'successful trading', or 'experts' mean will be turned upside down - to your advantage.
Tap here to see the CML Pro option back-tester.
Thanks for reading, friends.
Risk Disclosure
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
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The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Capital Market Laboratories ("The Company") does not engage in rendering any legal or professional services by placing these general informational materials on this website.
