Yahoo Finance

Alphabet, the latest of the big tech names reporting first quarter results this earnings season. The company showing resiliency as it surpasses Wall Street's earnings expectations. But with many more of the magnificent 7 tech names set to report in the coming days, we're looking at ways for investors to get in on the action. Options Play, senior options strategist Brian Overby is joining us now to discuss in the options playbook sponsored by Tasty Trade. Brian, it's good to see you. Um, let's dive right in and talk about a couple of these names and then maybe we'll zoom out afterwards and talk about the VIX here. Um, let's get straight to Microsoft, which is one of the stocks that you're looking at with the way to play it here. Um, and I'll let you, um, describe it because it's got a couple legs here. So, so talk us through it.

It does. It's actually known as a bull call spread. The implying that we do want to get bullish on Microsoft. One of the biggest things out of the Meg 7 is Microsoft doesn't have as much exposure to the trade war and the tariff news. And because of that, what we're kind of hoping is that, uh, writing into earnings because they've been fairly decent so far, we'll get some good news. And we're going to try to set up a trade where we have a little bit more upside than we do downside. And we can do that with options. So we're looking to go to the May 16th expiration, which is 21 days away. Microsoft is going to announce on, uh, next week, early, and then we, uh, I apologize. And we're looking to buy a little bit in the money. So Microsoft we saw was up today. It's trading at 391 at this point in time. We're going to look to buy the 385 strike call. And then at the same time, sell the 400 strike call, which is obviously a big round number, which is a little hard for markets usually to try to break through. We're going to do this entire trade for $6.85 or that would be $685 per one by one, uh, spread that we put on. That would be our max risk on the trade. Our max upside on the trade would be $8.15 or $815 per one by one bull call spread that we established. So we get a little bit more upside than we have downside. And we're just looking for a medium move to the upside. And Microsoft is showing a little bit as far as the chart is concerned, we're showing a little bit of upside momentum. Uh, like a lot of the other Meg 7 stocks at this point in time.

So I just had a follow-up question, why Microsoft ahead of some of the other ones? It's not necessarily been one of the more volatile ones around earnings. I mean, is there another reason that compels you to play Microsoft versus a Meta, uh, an Apple, I'm just curious from that.

Are you doing all of them?

Well, yeah, well, I always would like to look at what we think is bullish or bearish, more based off of the news in this day and age. And so, as far as the trade war is concerned, they're a little bit less exposure. They all of the Meg 7 stocks have some exposures to tariffs and, uh, the news headlines, but with Microsoft, you know, Azure and, uh, the cloud is one of their biggest, um, uh, revenue sources. And that doesn't have a ton of exposure in this space. And also, not a lot of people are talking about it relative to the rest of the Meg 7. So we're kind of hoping that they, you know, kind of fly under the radar and, uh, strong earnings or the strong momentum and the strong earnings can propel them to an upside to another level.

Um, you do though also have a suggested trade on Amazon, you know, so we're not leaving, we're not leaving all of the the Meg 7 out besides Microsoft. So what what's your thought on Amazon and where we could see it go?

Well, on Amazon, I'm looking to sell a little bit more of the volatility premium. Now, once again, Amazon web services and and cloud-based services are a big part of Amazon. And on top of it, they're kind of a low-cost leader. So if across the board, if we do see some weakness in the economy and the customer, Amazon still has some strength in their pricing power. So in Amazon, we're looking to do something a little less speculative. We're going to actually do what's called a short call spread, or short put spread, I'm sorry, which is still bearish on the marketplace, but we're going to bring in a net credit as opposed to paying a net debit for that trade. So in this instance on Amazon, what we're looking to do here is we're going to sell something right about where the stock closed at today. And we're going to use that same expiration. We're going to do the the May 16th expiration. So Amazon I I see closed at 188.99 today, almost 189 exactly. And we're going to be selling the 185 strike put. And then at the same time, we're going to be buying the 175 strike put. And what's great about this marketplace is you're getting a real nice risk reward ratio because of the increased implied volatility. So this trade is okay if Amazon stays where it's at, or drifts a little bit lower. It just can't drift a lot lower. So we're bullish on the market, we'd like the market to go up, but there are three different scenarios where this trade can pay out. Now, based off of those those, uh, those strike prices and where the market was at, we could get this done for a net credit of $3.43, and that's going to put our risk at a, uh, $6.57. So you have more scenarios that you make money when you look at the Amazon trade, but you have a little bit more risk if you are incorrect on your forecast and Amazon does actually come down. But the implied volatility and the levels that they are in the marketplace right now, uh, make this trade more interesting, I guess, than than in normal cases. And on top of it, we're throwing in an earnings report.

Gotcha. All right, lots of action to look forward to. Thanks, Brian. Appreciate it.

Till next time.