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Microsoft Corporation (MSFT) Stock: Create Income From Value

MSFT stock need only meander for us to make free profits

Microsoft (MSFT)

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A few weeks ago, I shared a trade idea in Microsoft Corporation (NASDAQ:MSFT) from which I was lucky enough to scalp profits. Although I believe in the longer-term story, we could see temporary resistance in MSFT stock — at least in the short-term.

I’m still steadfast in the thesis that, given the current macroeconomic environment, stocks will at worst meander for months. Thus, I have a trade setup that will let time make us money.

Microsoft (MSFT) stock chart view 1
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Microsoft’s fundamental prospects remain solid. So, in the absence of a new bearish headline, MSFT stock should trade right along with the general equity markets. The short-term macroeconomic picture is riddled with nagging issues that could cause dips, but bulls have been buying them back up.

Because of Microsoft’s solid fundamentals, I want to put more time on the clock so I don’t have to worry about short-term price gyrations.

This is not the kind of trade idea you can use in unproven stocks like Snap Inc (NYSE:SNAP), by the way.

How to Trade MSFT Stock Here

The bet: Sell the Jan 2018 $50 put for $1.50 per contract. This is a bullish trade that assumes Microsoft stock will stay above my sold strike through next January.

By selling the put, I have committed to buying the shares at $50 if MSFT stock falls below that threshold. The current price buffer gives this trade — in which I’m betting that support levels established in 2014 will hold — a 90% theoretical chance of success.

Selling naked puts is not suited for all investors, however. That’s OK. I can modify the trade into a credit spread. This would make it more appealing to less aggressive traders or smaller accounts.

The alternate: Sell the Jan 2018 $52.50/$50 credit put spread. This is still a bullish trade, but one that has a finite risk profile. For that, I sacrifice some buffer and potential profits since with limited risk comes limited profit potential. If successful, though, this trade on MSFT stock will still yield 15% on risk.

Selling options can be dangerous, so never risk more than you are willing to lose.

Nicolas Chahine is the managing director of 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.

Article printed from InvestorPlace Media,

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