Microsoft faced a significant drop in its stock price after releasing its earnings report, falling 12% in Thursday’s trading session. This decline wiped out $400 billion in market value, the second-largest one-day loss in U.S. history. Investors are worried about Microsoft’s increasing capital expenses, which are expected to rise by 66% by 2026 for data center expansions. The NASDAQ 100 index reacted by declining over 1%, while the broader NASDAQ Composite fell by 1.6%. The S&P 500 and Dow Jones dropped 0.6% and 0.2%, respectively. Bitcoin also fell, dropping over 6% to $83,600. Although Microsoft reported strong financial results, including an adjusted EPS of $4.14 and revenue that exceeded expectations, analysts still expressed concerns.

OpenAI Funding Concerns

OpenAI’s funding issues are adding to the worries about Microsoft’s future, as almost half of its Remaining Performance Obligations are connected to OpenAI. This has created unease, despite ongoing discussions about a $60 billion investment from Microsoft, Amazon, and Nvidia into OpenAI. Other software companies like ServiceNow, HubSpot, and SAP also experienced sell-offs amid this market anxiety. The significant drop in Microsoft’s stock has raised fear and volatility in the market. The implied volatility for NASDAQ 100 options, indicated by the VXN index, jumped over 25% yesterday, reaching its highest level since the uncertainty seen in October 2025. This increased volatility may present new opportunities for options traders. For traders expecting further declines, technical analysis suggests that the stock may fill its chart gap from May 2025, targeting a price near $396. A simple bearish strategy could involve buying February or March put options to take advantage of this potential move, providing defined risk while exposing traders to possible further declines due to spending concerns. Consumer Price Index Influence The current market anxiety is also influenced by last week’s Consumer Price Index report, which showed inflation at 3.2%, slightly above expectations. This has led to doubts about the Federal Reserve quickly lowering interest rates. This concern was evident in the options market, where put volume on Microsoft reached over 2.5 million contracts, a 500% increase compared to its recent daily average. Conversely, the stock’s Relative Strength Index is now at 31, suggesting it is nearing oversold territory. Traders who see this as a typical overreaction might consider selling cash-secured puts with a strike price below $390. This approach allows for collecting premium and profiting if the stock stabilizes or rebounds. We’ve seen this trend before, like when Meta Platforms dropped sharply in early 2022 due to worries about its metaverse spending. That situation turned into a long-term buying opportunity, but the stock remained pressured for several months before bouncing back. Microsoft’s drop is already impacting other software companies, indicating that investors are broadly reassessing high-growth tech valuations. In light of the uncertainty, traders expecting continued volatility but unsure of the direction could consider volatility strategies. A long straddle, which involves buying both a call and a put option at the same strike price and expiration, could be beneficial. This strategy profits if the stock makes a significant move—either up or down—larger than the total premium paid. Create your live VT Markets account and start trading now.

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