Microsoft Corporation (MSFT) Stock Can Help You Compute Free Profits

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I recently wrote on how to double you money with Microsoft Corporation (NASDAQ:MSFT). While that trade is still performing, I can still enter with new prospects for the opportunity at hand. The idea is to profit from MSFT stock for free.

Fundamentally, the long-term story remains intact. Microsoft is a well-managed company with several solid streams of profitable income. As long as markets in general hold up, it would take a lot of bad luck for it to be derailed.


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For the short term, the price action in MSFT stock tells me that there is a move coming soon. Technically, the range has been tightening, and usually this resolves itself in a burst.

The direction of the move is the unknown, but breaking past $65 per share could bring a new high, whereas losing current levels could cause a retest of $63 as support.

Thanks to MSFT stock options, I can structure trades that would profit from the burst with little out of pocket risks.

The Bet: Buy the Microsoft Apr $65/$62.50 debit put spread. This is a temporary bearish trade for which I pay 90 cents per contract to open. This is my maximum risk. My reward would be more than a double and would come if MSFT stock falls through my bought position.

The Other Side of My Thesis: This bet could be flipped by someone who has the opposite side of my short term thesis. Someone who thinks that the short term breakout will be upward can buy a debit call spread.

Regardless of which way the bet lies, I can reduce my out-of-pocket expense. I will sell longer-term downside risk to finance the bet.

The Bank: Sell the Microsoft Oct $57.50 put. This is a bullish trade for which I collect $2 per contract to open. I need MSFT stock to stay above my sold strike to win. The 10% price buffer from current price givens me a 90% theoretical chance of success. By selling a naked put, I am committing to owning the stock at that sold put if price falls below it. So I only do this if I am willing and able to execute the purchase. A less risky version of this would be to sell a credit put spread instead.

As long as the MSFT stock price stays above my sold put strike, I can recapture premium from my bought, shorter-dated position by selling it back. Any premium I recapture from that debit spread would add to my profit.

I am not required to hold Microsoft options trades open through expiration. I can close any trades at any time for partial gains or losses.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/microsoft-corporation-msft-stock-compute/.

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