Here’s your trade on $MSFT – April 26, 2023
Dan Fitzpatrick and I want to go through Microsoft ( NASDAQ: MSFT ) today. Microsoft ( NASDAQ: MSFT ) reports some pretty strong earnings and the stock gaps up.
This is what a lot of people will do, a stock will gap up first thing in the morning and a lot of the retail folks will say, Wow, I want to be first in line to buy the stocks, so I am going to go ahead and place a market order. I just want to get the stock before it goes up to 350.00.
And this is invariably what happens, the stock opens up really, really high, and why is that? Because there is a lot of demand and if anybody going to sell the stock, they are going to sell it at a really high price. They are going to go, Hey man, you might want to buy it at 294.00, but I am only going to sell it to you at 296.00 or 297.00. And so that is why the stock opens up so high.
It is always better, rather than if you get, what I call the “can’t help it’s”, you have just got to own this stock. If you have got to buy a stock that is up this much, wait, let the stock do what it’s going to do.
Now, if it were to keep on moving up, then sure, go ahead and buy it and you’ve got your stop right there, there’s your trade, you just keep on doing that. However, if it doesn’t do that, and most times it won’t, then you are best to wait. You just wait on this stock to come back and fall, here, in this case, it fell quite a bit, about a point and a half, or almost a point and a half between where it opened and where it ultimately bottomed out and then started to move higher.
So the stock does this, gaps up, comes back down, and finally is trading above the VWAP, which typically actually kind of doesn’t happen on something like this. A lot of times, especially in a heavy market like this, the stock will just continue to go lower or just kind of meander sideways. In this timeframe, the stock, instead, bucked that trend and kept moving higher. And so you would have been better off waiting.
Now, let’s look at this in a different timeframe. On an hourly timeframe, you can see this is just kind of a mess. Where it has been effectively trading sideways it is just not that much different, it’s a little lower than the open. So all things considered, if the market were to stop trading right now this would actually be advantage bears.
The reason I say that is because I am not looking at where the stock was yesterday. I couldn’t give a darn where the stock was yesterday because that was pre-earnings.
What I care about is, where is the stock trading now that earnings are in the bag? Now that earnings are finally released and the market is trading on that new information, what are we doing, what do we have going here? What I am seeing here is, that relative to the open, which is the first post-earnings print, right here, relative to this level the stock is lower.
And so I am looking at this and I think, okay, I think this is probably going to continue lower, that’s where I see it on the VWAP. And so what we did on Option Market Mentor was place a bear call spread.
My bet is, that the stock stays below 300.00, or certainly 305.00. And so we sold the 305.00 and then bought the 315.00 calls as a hedge, as insurance, and that’s our trade for Microsoft ( NASDAQ: MSFT ), as far as how we are playing this. I think this trade is going to work, it should work pretty well. We are just going to have to give it a few days.
But the moral of this story, boys and girls, is don’t buy gaps like this. You are very rarely going to make good money, at best you will kind of be flat, where you took a bunch of risk and you are not getting a reward for it. And right now, that’s what’s happening here.
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