Earnings season kicks off in earnest this week, especially for tech stocks. And that means it’s time to dust off the ol’ earnings playbook and prepare yourself for a barrage of binary events. These quarterly rituals allow shareholders to peek behind the current to see just how their companies are performing. Did they smash expectations and thus qualify for substantial overnight gains? Or did they fall short and deserve punishment? Such questions circle the minds of investors as their favorite companies step up the plate.
Right now, three heavy hitters in the technology sector are on deck. Two are hoping to continue the pace of earnings growth, which has led them to their lofty perch. The third is trying to shake off last quarter’s nightmare, which dealt a heavy blow to its share price.
Of course, the one thing tech stocks have going for them right now is sentiment. The Nasdaq rebounded valiantly last week and now sits a stone’s throw from new highs. Its six-day run has carried the index back above all major moving averages. Time will tell if the rosy optimism carries over to the post-earnings reaction for these three tech titans.
Without further ado, check out these three tech stocks earnings to trade for the week ahead.
3 Tech Earnings to Trade: Microsoft (MSFT)
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Microsoft Corporation (NASDAQ:MSFT) shares are flying high ahead of Thursday’s earnings release. In fact, the sultan of software tagged a new record high at $73.27 right before the weekend. Year-to-date, MSFT stock is up 17.4%, so buyers have obviously been pressing their advantage this year.
There’s no need to fly blind into Thursday’s main event. We can use the options market to determine how much the market expects “Mister Softee” to move by the end of the week. The weekly straddle that expires Friday at the close is currently trading for $3.
That means traders are anticipating MSFT should trade in a range of up/down $3, or 4%. Since guessing the direction of the earnings gap is always a tricky exercise, let’s bet instead that MSFT will move less than expected.
Sell the Aug $65/$67.50/$77.50/$80 iron condor for 50 cents or greater. If MSFT stock sits between $67.50 and $77.50 at expiration, you will capture the initial premium received.
3 Tech Earnings to Trade: eBay (EBAY)
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Our next tech darling stepping up to the plate this week is eBay Inc (NASDAQ:EBAY). EBAY is scheduled to report earnings after hours on Thursday alongside MSFT. It, too, is having a banner year with shares up 25% and currently perched at a record high.
A quick glance at EBAY stock options reveals a weekly straddle value of $2.27. That translates into an expected move by the end of the week of 6.1%.
If you think eBay shares gap up less than expected, and that low volatility drift continues afterward, consider selling the Aug $32/$34/$40/$42 iron condor for 46 cents or better.
The spread essentially is betting that EBAY will remain between $34 and $40 for the next month, though you may consider exiting right after earnings if you have a decent profit.
3 Tech Earnings to Trade: International Business Machines (IBM)
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Our final tech stock finds itself in the doghouse this year. It’s one of the only big-cap tech names that hasn’t participated in the bullish festivities. And the blame lies in large part with disappointing earnings.
International Business Machines Corp. (NYSE:IBM) is currently down 7.5% year-to-date. The entirety of the losses have come since its previous earnings announcement, so shareholders are hoping for some magic Tuesday night to arrest the stock’s slide.
Options are pricing in a 4% move by week’s end. We’ll go with another iron condor play here for those that want to bet the stock moves less than expected. Sell the Aug $140/$145/$160/$165 iron condor for $1.45 or better.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
