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Could Microsoft earnings prove volatile? Options traders are betting on it

The biggest week in Big Tech earnings season is upon us, and Microsoft kicks things off in earnest when it reports after the bell Tuesday. The stock is already up more than 35% on the year, but options traders are betting the big moves in Microsoft might not be over just yet.

The options market is implying a post-earnings move of 5% in either direction, or double the average post-earnings shift of 2.5% that the stock has made over the last several quarters. One of the most notable trades of Monday's session sought to take advantage of that elevated implied move by betting on volatility, regardless of direction.

"1,500 of the Microsoft Oct. 30, this Friday, and Nov. 6, next Friday, 210/220 strangle swaps traded for $280 [per contract]. So they bought the 210/220 strangle out to Nov. 6, paid $9.75 for that, and they sold the Oct. 30 210/220 [strangle] at $6.95, for a net cash outlay of $2.80," XP Investments Managing Director of institutional equity derivatives said Monday on CNBC's "Fast Money."

This trade breaks even about 6.5% higher than where Microsoft closed Monday's session, or just about 1% lower, allowing this trader to cash in regardless of whether Microsoft surprises to the upside or downside in its earnings report.

"If the stock breaks [below] $203.05, or [above] $226.95 before Friday, what you're going to do to manage this position is sell out of that November long [position] and buy back that October [position]. I thought this was pretty interesting," Eison said. "You're selling earnings volatility, you're buying back earnings and election volatility. Pretty crafty!"

Microsoft was trading about 2% higher in Tuesday's session.

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