Long Delta in MSFT

Key Concepts

• Omnidirectional Put Ratio Spread: A trading strategy involving buying and selling put options at different strike prices to profit from a range of price movements.
• Implied Volatility (IV): A measure of the market's expectation of future price fluctuations. IV Rank indicates the relative level of volatility compared to its historical range.
• Delta: A measure of an option's sensitivity to changes in the underlying asset's price.
• Theta Decay: The rate at which an option's value decreases as time passes.
• Break-Even Point: The price at which a trade becomes profitable.
• Tasty Trade: A brokerage platform specializing in options trading.
• Portfolio Margin Account: A brokerage account that allows for more leverage and complex trading strategies.
• Standard Deviation: A statistical measure of the dispersion of a set of values. In this context, it represents the expected price range of the stock.

Market Overview & MSFT Analysis

The speaker begins by noting a slight downturn in the overall market: S&P down 14, NASDAQ down 20, Russell down 4, and Dow down 314. However, these indices remain near all-time highs, and volatility is only slightly increasing. Microsoft (MSFT), however, is bucking this trend, down $8 (previously $10-$11) despite the broader market’s performance. MSFT’s IV Rank is 38, and implied volatility has been steadily rising since late December.

The speaker attributes this volatility increase to MSFT’s upcoming earnings report on January 28th, suggesting the expansion is largely complete. This assessment is based on the speaker’s trading experience, observing that February volatility (30) is lower than current month volatility (under 30), and shorter-dated volatility is highest near earnings. He anticipates limited further volatility expansion in the short term.

A key observation is MSFT’s underperformance relative to the overall market. While other indices have rallied, MSFT has remained stagnant, failing to reach its October high of $550 and continuing to decline to under $470. This disconnect is a crucial factor in the speaker’s trading strategy.

Trade Setup: Omnidirectional 1x2 Put Ratio Spread

The speaker outlines a specific trade: an omnidirectional 1x2 put ratio spread on MSFT. This involves:

• Buying one 435 put option.
• Selling two 420 put options.

He executed a similar trade previously when the stock was $3 higher, receiving a credit of $1.60, and is currently up on that trade. He emphasizes that this trade is being executed with a wider spread than usual due to existing long delta positions in MSFT, allowing for reduced credit received while aligning with his overall portfolio strategy.

The trade was initiated at 9:44 AM, and the speaker highlights a previous iteration of the trade yielded a 92% probability of profit for $16.

Omnidirectional Strategy Explained

The strategy is described as “omnidirectional” because the potential for profit exists even with significant price movement. The green line on a chart illustrates profitability down to approximately $405, well beyond the standard deviation (represented by a single line).

The trade utilizes options with different deltas:

• Buying the 20-ish delta option (435 put).
• Selling the 13-inish delta option (420 puts).

This creates a break-even point $15 below the short strike price of 420 (i.e., 405). The potential maximum profit is $1600 if the stock price reaches $420 at expiration, 38 days away. The trade generates approximately $8-$9 per day in theta decay.

The speaker notes that traders without existing long delta positions in MSFT might consider a narrower spread to increase delta and premium collected, potentially lowering the break-even point to around $410. However, he prefers the wider spread due to his existing portfolio.

Tasty Trade Promotion & Account Benefits

The speaker concludes with a strong endorsement of Tasty Trade, urging viewers to transfer their accounts. He highlights benefits for new accounts, including:

• Cash bonus: Up to $10,000 for accounts transferring $250,000 or more.
• 4% interest: Earned on new account funds.
• Free trades: Offered for approximately 30 days.

He directs viewers to the follow page or bats to view his trades and encourages them to take advantage of the offer.

Logical Connections & Synthesis

The video follows a logical progression: market overview, specific stock analysis (MSFT), trade setup, explanation of the strategy’s mechanics, and a promotional call to action. The speaker connects MSFT’s underperformance and upcoming earnings to the opportunity presented by the put ratio spread. He emphasizes the importance of tailoring the trade to individual risk tolerance and existing portfolio positions.

The main takeaway is the application of an omnidirectional put ratio spread as a strategy to capitalize on potential price movement in MSFT, leveraging implied volatility and managing risk through careful option selection and portfolio context. The speaker’s emphasis on Tasty Trade underscores his preference for a platform designed for options trading and offers viewers potential financial incentives to join.