Bitcoin sets a new all-time high above $6,000 >>> READ MORE

Don’t Go Soft on Microsoft Corporation (MSFT) Stock Just Yet

Microsoft is on course to dominate cloud computing, and the rally in MSFT stock is far from over


When I last checked in with Microsoft Corporation (NASDAQ:MSFT) back in early April, I talked about a potential breakout, driven by the company’s expanding cloud and artificial intelligence initiatives. Microsoft got that break, and on April 21, MSFT stock broke out of a trend channel in the $65-$66 range to hit fresh all-time highs.

Don't Go Soft on Microsoft Corporation (MSFT) Stock Just Yet
Source: Shutterstock

While third-quarter earnings were merely ho-hum, the real story behind Microsoft’s new mojo lies in the clouds. Specifically, revenue at the company’s Intelligent Cloud unit rose 11% to $6.76 billion, with Azure leading the way with a 93% surge in sales.

Azure is currently the market leader when it comes to business cloud services, and competes directly with, Inc.’s (NASDAQ:AMZN) Amazon Web Services (AWS) division.

With Microsoft expanding it’s control of the cloud computing market, investors sent MSFT stock soaring. The shares are up roughly 4.5% since late April, and are now looking to establish a base in the $68-$70 region.

MSFT stock chart
Click to Enlarge 
Furthermore, Microsoft’s recent retreat from resistance near $70 could mark an excellent entry point for a long position on the shares, as Microsoft consolidates its recent gains and looks to head higher.

Turning to the sentiment backdrop, Microsoft has always been a bullish favorite on Wall Street. Currently, data from Thomson/First Call indicates that 24 of the 34 brokerage firms following Microsoft stock rate it a “buy” or better. Additionally, the 12-month consensus price target rests at $74.13, representing a minimal premium of about 8.3% to yesterday’s close.

With Azure revenue growing by leaps and bounds, look for upgrades or price target increases down the road for Microsoft shares

Options tell a different story, however.

Put open interest is on the rise as options traders bet on a retreat from recent highs for MSFT stock. In fact, the June put/call open interest ratio has risen to a near-term high of 1.45 — unusual territory for Microsoft’s put/call ratio, as puts easily outnumber calls among back-month Microsoft options.

Overall, June implieds are quite low for MSFT stock — well below historicals, even. In other words, Microsoft options are cheap right now. The expected move for MSFT shares comes in at just shy of 2% ahead of June expiration, putting the upper bound at $69.85 and the lower bound at $67.15.

2 Trades for MSFT Stock

Call Spread: Traders looking to bet on a return to recent highs for MSFT stock might want to consider a Jun $67.50/$70 bull call spread.

At last check, this spread was offered at $1, or $100 per pair of contracts. Breakeven lies at $68.50, while a maximum profit of $1.50, or $150 per pair of contracts, is possible if MSFT stock closes at or above $70 when these options expire.

Put Sell:  Low premiums aren’t conducive to selling premium, but low volatility does cut down on the risk associated with put sell positions. Additionally, MSFT has a tendency to trend sideways unless driven by events such as earnings.

As such, traders looking to add a little cash to their portfolio might want to consider a June $65 put sell. At last check, the $65 put was bid at was bid at 31 cents, or $31 per contract.

As long as MSFT stock trades above $65 through June expiration, traders pursuing this strategy will keep the $31 premium. However, if MSFT trades below $65 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $65 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC