Trade of the Day: Microsoft (MSFT)

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Shares of Microsoft Corporation (NASDAQ:MSFT) tumbled late last week and, despite a brief rebound on Friday, the shares look ugly.

Microsoft is on track to test $40 following its recent “death cross,” and a close below this level would be bearish. A death cross forms when the 50-day moving average crosses below the 100- and 200-day moving averages.

microsoft

Chart courtesy of StockCharts.com

I’m not a big fan of shorting some of my favorite stocks, as I have followed MSFT for more than two decades. However, with options, it’s easier to do, as I can use put options to take advantage of short-term or longer-term downside moves.

For Microsoft, a break below $39.95 and its February 2015 low would likely get the May 2014 low of $37.50 in play.

As far as a clear signal, I’m waiting for a possible drop below $39.85 to use the MSFT April 39 puts (MSFT150417P00039000, $0.40, up $0.05) or the MSFT May 39 puts (MSFT150515P00039000, $0.85, up $0.05) to go “short.”

The MSFT April 39 put options expire in a month and would more than double if shares traded down to $38 by mid-April. These options would be worth at least $1.00 if this price target was achieved.

The MSFT May 39 puts would have the potential to nearly double if shares trade down to $37.50 by mid-May. The May options would give the trade more time to play out, as they don’t expire for two months.

If Microsoft shares hold $40 for a few weeks, then it might signal a near-term bottom. If so, I would then turn my attention toward call options.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/microsoft/.

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