Microsoft (NASDAQ:MSFT) has been one of our favorite stocks to sell options against because its chart looks like this…
Daily Chart of Microsoft Corporation Since January 2020 (MSFT) — Chart Source: TradingView
The tech juggernaut just keeps climbing higher and higher as companies continue to invest in their cloud infrastructure and more and more employees settle into working from home for the long haul.
If you saw our trade recommendation yesterday, you know we were waiting for this opportunity. It came a lot faster than we thought.
Tech Shares Lagged the Market on Tuesday
Tech stocks did gain on Tuesday, but not nearly as much as the rest of the market. MSFT only managed a 0.62% rise while the S&P 500 rose by over 1%, and yesterday, MSFT gave up some of those gains.
Though its shares aren’t pushing higher at the moment, there is still a lot to like about MSFT’s fundamental situation.
An analyst from RBC Capital upgraded the stock, setting a target price of $240 per share.
The company has the new Xbox’s launch approaching, and it has partnered with Citrix Systems (NASDAQ:CTXS), the networking company, to bring Microsoft Azure to organizations looking to bring operations onto the cloud.
CTXS using Azure as its preferred cloud platform will only increase MSFT’s dominance in that space.
A Closer Look at MSFT’s Chart
We’ve been waiting for MSFT to pull back for a couple weeks so we could recommend a new trade on the stock, and it has finally happened. After reaching a new high of $216.38 on July 9, MSFT has pulled back and established a new support level just above $200, which you can see in the blue circle below.
Daily Chart of Microsoft Corporation Since May 2020 (MSFT) — Chart Source: TradingView
We are confident this support level will hold in the run-up to the company’s earnings announcement on July 22, after market close, and we think selling a put write with an expiration after earnings is worth the risk because traders will collect so much additional premium.
The $200 strike price lines up well with the new support level, and we think MSFT’s necessity during the pandemic will keep its price above that level.
If you do sell an option that expires after earnings, we recommend looking at early August expirations. That will give the stock time to rebound if MSFT does experience some post-earnings profit-taking.
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.