Microsoft Corporation: Mind The Gap in MSFT Stock With Better Odds

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Coming off a well-received earnings beat, being optimistic on Microsoft Corporation (MSFT) doesn’t require MSFT stock bulls to have their “heads in the cloud” in an otherwise stormy market.

Microsoft Corporation: Mind The Gap in MSFT Stock With Better Odds

But if investors are going to “mind the gap” with a bit more control, a weeklys long call strategy looks prudent in MSFT stock while offering an attractive risk-to-reward profile.

Last week MSFT stock shot higher by nearly 6% as investors looked past a modest decline year-over-year in Microsoft’s profits and sales and cheered the tech giant’s top and bottom-line beat.

Behind the Street beat and bid in MSFT stock, the report backed Microsoft’s progress in diversifying away from the shrinking PC market and its ability to gain ground in growth areas like server and cloud markets.

Microsoft Stock Daily Chart

020416-msft-daily-chart
Source: Charts by TradingView

The daily chart of MSFT stock shows a very strong situation demonstrating both relative strength and pattern confirmation to act as support for bullish positions.

Since the late-August flash crash, MSFT stock has managed to break out from a massive first-stage, high level double-bottom and subsequently, successfully test prior resistance before moving higher.

The net result on a percent basis is MSFT stock is up approximately 30% since the flash crash, while gaining ground constructively. At the same time, the S&P 500 is up by roughly 3%.

The only potential flaw of late might be MSFT’s recent failed breakout from a four-week flat base back in December. But given a much frailer broader market, the weakness can hardly be faulted.

Currently, and following a simple, albeit somewhat volatile, four-day pullback and gap fill of the earnings reaction, MSFT stock has established in an inside candlestick. For bullish investors, a move above Thursday’s high in MSFT stock is one way to generate a buy signal to initiate a long position.

Microsoft Stock Long Call Strategy

For bullish traders looking to better mind the gap with guaranteed defined risk, the MSFT stock weeklys February 26 $53 call for up to $1.20 is an attractive way to position short-term.

With the call finishing at 80 cents, the discussed purchase price reflects an estimate of the option’s premium if MSFT stock moves through Thursday’s inside candle high of $52.80.

Traders could always buy the MSFT stock weeklys call contract sooner. But by waiting and paying up in this sort of situation, the bullish trader may find a better shot at jumping on board with momentum to make up for potential time decay and less certain price direction.

Regardless of the entry preference, we would suggest an extra layer minding the gap — use Wednesday’s low in MSFT stock as a stop loss to further reduce the guaranteed risk offered by the weeklys call.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/microsoft-mind-gap-msft-stock-better-odds/.

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