There’s good reasons to be bullishly optimistic on Microsoft Corporation (NASDAQ:MSFT) these days. But for investors, there’s less reason to be exposed to unnecessary risks both off and on the Microsoft stock price chart. The good news is you don’t have to be. Let me explain.
MSFT stock may not be the go-go growth stock it was back when dial-up internet services and Socks.com were still vying for investors’ attention. But that’s not entirely bad news for Microsoft investors.
For a company still somewhat synonymous with the ubiquitous Windows OS and PC market, great strides beyond those legacy businesses have been made — strides which, overall, continue to bode well for Microsoft stock.
Where Microsoft Stands
The fact is, Microsoft has captured strong market share and is enjoying robust growth in budding markets such as the cloud, artificial intelligence and augmented reality which should support the company’s reboot for the next quarter of a century and beyond.
Some of the solid rebuild has been organic and under the stewardship of Microsoft’s well-respected CEO Satya Nadella and whose “Mobile First, Cloud First” philosophy and technological vision is a major driver.
There have also been smart acquisitions and alliances which should benefit MSFT stock investors going forward. For one, last year’s $26 billion buyout of LinkedIn gives Microsoft access to the world’s most dominant player in the business networking space.
With LinkedIn’s membership nearing a half-billion users and Microsoft integrating the service into its Dynamics CRM platform, the impact should ensure more growth in this market and act as yet another support for Microsoft stock and its shareholders.
More recently, last week it was officially announced Microsoft and Adobe Systems Incorporated (NASDAQ:ADBE) will collaborate in this market and one increasingly reliant on the use of artificial intelligence for stronger productivity.
The partnership integrates Microsoft Dynamics 365 and Adobe Experience Manager to this end. Customers can now better manipulate information and obtain stronger client outcomes. As standalone platforms, this wasn’t possible earlier and should help Microsoft compete against business rivals Salesforce.com, Inc. (NYSE:CRM) and Oracle Corporation (NYSE:ORCL).
Bottom line, Microsoft stock continues to look quite promising for delivering shareholder value beyond healthy stock buybacks and dependable dividend payouts as the reboot of Microsoft 2.0 continues to offer growth opportunities off the chart.
Microsoft Stock Weekly Chart
On the MSFT price chart and since writing about Microsoft stock in mid-February, not much has changed in the bank accounts of shareholders. But that’s far from a bad thing. Microsoft stock is up about .75% over the last several weeks and has continued to trade in a tight consolidation.
More specific, a bullish, flat-and-tight inside base of eight weeks has developed on top of a very constructive longer-term technical picture. Now and as stochastics flirts with an oversold condition, MSFT stock’s uptrend is looking quite friendly for intermediate-minded investors to enter into a collar position.
MSFT Stock Collar Strategy
Reviewing the MSFT options board, I like using a collar on Microsoft stock for positioning as part of a core holding within a portfolio.
Specifically and with MSFT at $64.98, an investor can sell the April $67.50 call and simultaneously buy the April $62.50 put for a debit of 10 cents. In conjunction with the purchase of shares, the collar costs $65.08.
In my last article, the suggestion was for Microsoft investors to incorporate the sale of the $60 put. At the time and with shares at $64.38, this created an even-money, modified collar. Now though, and with the put trading for a measly 7 cents and earnings embedded in the April contract, it’s a less sensible risk.
Should an investor purchase the regular collar, for the extra 10 cents premium paid, downside risk is contained to less than 4%. Having that kind of protection in place through earnings, and even the occasional anomaly, is nice insurance to have.
The real cost of the collar would be if MSFT produced an abnormally large upside reaction following the earnings event. Profits are initially capped at just under 4% and matching the downside risk.
The good news is the likelihood of MSFT moving more than 4% to 5% by a substantial amount is historically small. Throw in an expensive overall market and MSFT not being impervious to those pricing concerns either, and it’s a risk thought worth taking.
Lastly, if Microsoft shares did surprise with a stock reaction through the sold call strike, the trader can continue to roll the collar up and out and trend trade the stock for additional gains.
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.
