How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 508.82

+0.6%

Nov 11 3:59 PM EST

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To: edamo who wrote (30167)	9/27/1999 7:09:00 AM
From: t2	Read Replies (1) of 74651

edamo, I am making an assumption that implied volatility would be higher if earnings were released before expiration--or get higher. I could be wrong as i don't really understand it very well. I am still learning the pricing of options---although i think knowing the stock movement is far more important. Most of the earnings price move should happen by Friday of expirations anyways. Many times the day of earnings release is a down day especially since the dark cloud of the DOJ lawsuit. People might want out before earnings---my guess is the stock would closer higher on Friday than Monday. Implied volatility on MSFT calls has usually been in the high 30s---pretty low. If one can time the regular moves up in the MSFT stock price, the payoffs can be huge. In my experience, i have found that playing speculative out of the money call options about 2 weeks or less to expiration can pay off big. By speculative, i mean possibly under $1 (or maybe even $3). If one is right on the under $1 type of plays about 30% of the time, one can come out well ahead. Of course the percentage various depending upon how cheap the options are. If they trade at about 1/8, maybe 10% might do. Another factor complicating this is whether one is a profit taker type of options trader. How many times have we seen stock trading about $100 jump up $10 or more in the 5 trading days before earnings release? I have seen it a lot in companies that have a dominant market position OR a monopoly type of product. If there is a history of meeting and especially beating earnings expectations, the chance of a rally to earnings is even higher. Low implied volatility sure helps. I have found MSFT to be the best candidate for my trading and i have made most of my big gains on it. I use to play Dell earnings up until last November---the first sign of trouble. Once i experienced that disappointment by the street, i avoided major plays in Dell options (leading upto earnings).

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