It’s still not too late to buy into a very friendly-looking trend off and on the price chart of Microsoft Corporation (NASDAQ:MSFT). But with earnings around the corner, a fully-hedged collar position on MSFT stock continues to make a good deal of sense. Let me explain.
Microsoft reports late next week and as InvestorPlace’s Josh Enomoto notes, “boring Microsoft stock is still a must-have.” That’s not to say Microsoft can’t move lower. If it did though, I’d likely view the decline as a buy-on-weakness opportunity as that “boring” stock is also trending well off and on the price chart.
Bottom-line, MSFT stock has a lot going for it, starting with a 2.2% dividend.
And with revenue generation now evenly split between old growth and new growth markets and sales continuing to look favorable as Microsoft increases its reach in cloud-computing and artificial intelligence, shares look even more appealing. Lastly, factor in an equally trendy, but far from over-the-top Microsoft stock chart — and it’s still not too late to buy into Microsoft Version 2.0.
MSFT Stock Weekly Chart
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Back then, I gave MSFT’s staunch bullish trend a technical thumbs up. Today, all I can honestly add is say, “Happy Anniversary!”
The fact is, it has been exactly one year since MSFT stock finally cleared the prior century’s high-water mark set during the “Dot.bomb” era. And following a small and tight bout of indecision by investors; clearing that technical hurdle began a very strong shift in bullish price momentum.
What’s next?
Technically this could be cause for some corrective profit-taking, especially with shares up about 30% since clearing prior highs. And with earnings next week, surely those thoughts have crossed the minds of some investors.
However, given how long it took MSFT to make new highs and the much more confident behavior being only a year old, this is still a friendly looking trend. With that said, I have an eye on fresh highs and see any potential price weakness as opportunistic for bullish investors.
Microsoft Stock Collar Strategy
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Very similar to last time, a collar position continues to be viewed as a smart way to own MSFT stock as it looks to trend higher.
It also allows bullish investors to be in a potentially much stronger financial and mental position to accumulate on any price weakness in the future.
Reviewing Microsoft’s options and shares at $77.91, the November $82.50 call / $75 put combination for $78.45 is favored. What’s the additional 54 cents of premium offer investors wanting to go long MSFT stock?
As always with the collar, this strategy offers guaranteed protection on the downside. Here, the insurance offered by the $75 strike put is 4.4% below the spread cost. Not only does this help navigate earnings, but the position, as it maintains long stock, is also entitled to collect the next quarterly MSFT dividend of 42 cents when shares go ex-dividend in November.
On the upside, and if MSFT stock rallies, profits are initially capped at $4.05 or 5.16% as the collar trader has sold the $82.50 to partially finance the protective put contract. In of itself, it’s a nice return for a four-week holding period. Further, given Microsoft’s staunch trend and earnings reaction history, the collar makes all the more sense without costing a good deal more in the scheme of things.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits and feel free to click here to learn more about how to design better positions using options!
