Alibaba & Microsoft Unlocking Profits: How Options Trading Can Capitalize On Earnings & Breakouts

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On Friday May 10th, Live on Benzinga TV, Sandra Stone with Trading Made Simple LLC and Zunaid Soleman were discussing potential trade ideas.  

Trade 1: Breakout On Microsoft Corp.

  • Reason: The price of $MSFT MSFT stock reaching a key level at 415.00, a break above this level of resistance on the chart, indicating a potential bullish trend and an opportunity for price appreciation. We took a May 17th CALL DEBIT SPREAD 415 CALL/417.50 CALL for .92. A risk defined trade.
  • Profit Possibilities: If the breakout is genuine, the stock price could continue to rise, offering limited max profit of 1.58.
  • Risk Involved: Breakouts can be false signals, and the price could fall back below the support resistance level of 415.00. A stop-loss order for 25% below the breakout point can help limit potential losses. Total risk on the trade is .92. 
  • Results:  On Monday May 13, $MSFT gapped up over the weekend and opened +60% PROFIT.  Taking profit when you have it is a key rule to trading. At the end of the day the remaining contracts were +5% PROFIT. The stock reached $419.00 before falling back to 413.72

Trade 2: Earnings Event Alibaba

  • Reason: $BABA BABA was about to report its quarterly earnings. Depending on expectations, the stock price could react significantly to the news. A review of the last earnings report showed a significant rise before the earnings event. We took a May 17th 80/81 CALL DEBIT SPREAD for .39.  This is a risk defined trade. 
  • Profit Possibilities: The price could surge before and after earnings offering potential profits up to .61.
  • Risk Involved: Earnings reports can be unpredictable, and the stock price might not react as anticipated. Volatility leading up to and after the event can also be high. Total risk on the trade was .39 per contract.
  • Results: On Monday May 13th, $BABA rose to $84.60 and the CALL DEBIT SPREAD gained 130% Profit.  Taking profits and leaving a runner for the earnings event is a popular strategy.

Disclaimer: Past performance does not guarantee future returns.  Trading involves risk. This is not financial advice. Always do your own research before making any investment decisions. Consider your risk tolerance and only invest what you can afford to lose.

Sandra is live on Benzinga Fridays at 11:30am EST.  She can be reached at https://tradingmadesimple.org, X: Options_Sandy and 714-202-7361 each trading day. 

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

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