Whether the Fed can help the market remains to be seen. What is certain is that Microsoft Corporation (NASDAQ:MSFT) is giving investors more reasons to see additional value on and off the MSFT stock chart.
Tuesday night Microsoft announced a fresh stock repurchase plan worth up to $40 billion, as well as an 8% increase to its quarterly dividend totaling a payout of 39 cents and yield of 2.7%. The well-received news sent shares of MSFT stock up about 1% in after-hours trade.
No doubt the combined return of equity to MSFT investors is a nice support for shares. What’s more, when combined with Microsoft’s growing Azure cloud services platform and sturdy chart support, potential returns going forward look even beefier.
MSFT Stock Daily Chart
Not much has changed for Microsoft stock since I wrote about the company nearly two months ago. But technically speaking, that’s only improved the situation for Microsoft bulls.
After attempting a base breakout from a second and rather large, irregular W or double-bottom base, MSFT stock has contracted in a flat and tight base centered on the prior base highs. While this price action has put a lid on our prior call for a momentum breakout, it remains another constructive sign for higher share prices.
Furthermore, as the technical contraction has established a high-level double bottom by testing July’s post-earnings gap low, our view of fresh all-time highs in MSFT stock is gaining credibility.
MSFT Collar Strategy
Reviewing the options board, the Oct $55 put/$60 call collar looks interesting as a limited-risk position for investors.
With shares closing at $56.81, the collar was priced for $57.32 mid-market. Given the after-hours bid of $57.35, the spread should trade around $57.65 to $57.70.
For a core stock holding, this type of position is attractive as it’s one which collects the increased dividend, while limiting downside risk to around 5%. As the October collar holds the next earnings announcement, guaranteed protection is also a nice feature to have.
If shares of MSFT move higher, a capped return of around 4% can also be adjusted by rolling and ratcheting the collar to remain centered on the current stock price.
Bottom line, returns are rarely as good as a simple long stock position if Microsoft stock does rally strongly, but much lower volatility and control of risk are characteristics which make this collar one worth considering.
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.
