MSFT: Overhead Resistance Looms for Microsoft Stock

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Microsoft Corporation (NASDAQ:MSFT) has enjoyed a rocket-ship ride this week. The earnings-induced ascent has driven shares of the tech titan 13% higher over the past three days, which is an epic move given Microsoft stock’s mild-mannered temperament.

MSFT: Overhead Resistance Looms for Microsoft StockMSFT now sits within striking distance of its post-1999 high of $50.

In the short run, Microsoft’s stock price is overstretched, to say the least. As shown in the chart below, the RSI indicator has now risen into overbought territory above the 70 line. In fact, at 82 the RSI is at its highest level since 2007 showing just how rare it is to see ol’ Mister Softee rise at such a rapid clip.

The $50 zone resulted in a sharp downturn in MSFT stock the last time it was tested, so I’d imagine we see sellers come out of the woodwork around these levels again.

In summary, we have an overbought stock running into significant overhead resistance. Sounds like a recipe for sideways price action at best, if not a pullback.

MSFT: Overhead Resistance Looms for Microsoft Stock
Source: OptionsAnalytix

If you’ve enjoyed the recent run in MSFT, now may be an appropriate time to take some off the table. If you’re loath to part with your beloved shares now looks like a great time to sell a covered call.

MSFT Covered Calls

By selling a call option against your shares (1 call for every 100 shares you own) you capture some premium, which will provide a modicum of downside protection should MSFT pullback in the coming weeks.

Additionally, the call premium serves as income — a yield enhancer, if you will — should MSFT stall out near the $50 level.

Sell the June $50 call for 82 cents. By doing so you obligate yourself to sell 100 shares of MSFT at $50 in exchange for being paid the $82. The covered call will deliver higher returns versus stock ownership as long as MSFT stock doesn’t rise above $50.82 by June expiration, which is a long shot given its lofty perch and major resistance looming overhead.

At the time of this writing Tyler Craig had no position on any of the aforementioned securities.

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