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The market has been choppy since the S&P 500 hit its all-time intraday high last week, but we aren’t too concerned about the recent volatility.
We’ve expected some retracements because small-cap stocks and transportation stocks are lagging.
The CBOE Volatility Index (INDEXCBOE:VIX) has remained relatively low, which shows investors are still willing to takes chances. However, because the market has been a little unsettled, we want to be careful about which bullish positions we take.
Microsoft (NASDAQ:MSFT) — one of our most profitable positions over the last 15 months — is a good target for a bullish put write after its recent earnings report.
Revenue From Cloud-Based Services is up
MSFT has a few fundamental advantages in the current market. The company topped both earnings per share and revenue expectations for the fourth quarter, coming in at $1.37 and $33.72 billion respectively.
Although business investment has been somewhat slow, the company’s move into cloud subscription and hosting services continues to exceed growth expectations.
In MSFT’s earnings report last week, management revealed Commercial Cloud revenue grew nearly 40% over the last year. Azure based sales were up 64% over the same period.
As we’ve mentioned in our trade recommendations on Adobe (NASDAQ:ADBE), subscription based services are becoming more common and more profitable. Dominance in this growth market is critical for maintaining MSFT’s positive trend.
Support Around $135
We’re also not ignoring MSFT’s solid technical position. If you look at the chart below, you can see that MSFT just bounced off up-trending support — this time at just under the $135 level.
Daily Chart of Microsoft Corporation (MSFT) — Chart Source: TradingView
MSFT is highly correlated with the market, so a sudden decline in the S&P 500 could cause MSFT to break support. However, we don’t think that is likely before the Federal Open Market Committee (FOMC)’s announcement on July 31, when the FOMC is widely expected to cut the overnight rate.
If we sell a put while MSFT is still rising, we may have a chance to exit the trade early. As the stock rises, the value of any puts we sell will decrease. We could buy them back before expiration, and sell another round of puts for more income. That way, we’re still generating income while we wait for the market to settle.
To find out which MSFT puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.