A bullish situation, both off and on the price chart in Microsoft Corporation (NASDAQ:MSFT) has only scratched the “surface.” For investors looking to ride the trend in MSFT stock, one strong way to position is with a Microsoft options collar strategy.
Just over a month ago, I wrote about Microsoft stock’s all-around, terrific-looking prospects. A fresh repurchase plan and 8% dividend increase were nice support for shares of Microsoft, as was Microsoft’s growing Azure cloud services platform and equally supportive price chart.
Those are all still factors to consider as reasons to own MSFT stock. And following last week’s solid earnings beat, there’s growing evidence to support this view.
In our estimation — with Microsoft’s earnings results punctuated by strong commercial cloud-driven quarterly revenue growth of 59% — we believe MSFT stock has only scratched the surface for its shareholders and is poised for a breakout year in more than one way!
MSFT Stock Daily Chart
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The earnings reaction in Microsoft shares this past Friday broke MSFT out of its flat base-on-base pattern. The high-volume breakout also bullishly put shares marginally above the 1999 all-time-highs of $59.97.
Looking forward, a conservative initial price target of $65-$67.50 over the next few months or so appears reasonable when considering the lengthy and considerable chart work Microsoft shares have put together over the past days, weeks, months and years.
MSFT Collar Strategy
Reviewing the MSFT options board, the Dec $57.50/$62.50 collar looks ripe for investors interested in holding MSFT stock as a core holding.
With shares closing at $60.63, the collar is priced modestly above even money for $60.70 mid-market. The investor pays 7 cents over as a standalone position, but participates in the quarterly dividend and initially limits downside risk to 5.5% in the event market conditions go awry over the next couple months.
Limited risk, especially for such a low cost, is always a nice feature to consider. The other cost, however, is that this protection is financed by the call sale which caps the trader’s upside in Microsoft stock to 3%.
Bottom line, though, if MSFT stock does improve upon its massive breakout, adjusting and ratcheting the collar to remain centered around the higher share price is always possible. In turn, that leads to even larger trend-riding profits.
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.
