Some may believe the clock is ticking for the market, but could now still be a good time to buy Microsoft (NASDAQ:MSFT)? Let’s see what’s happening off and on the price chart of MSFT stock, then offer investors a more strategic, risk-adjusted opportunity for positioning with stronger confidence.
The broader averages have surged ahead the past four-plus months. It’s a reality that’s increasingly at odds with a Covid-19 pandemic, which remains deeply entrenched everywhere else inside U.S. soil. Yet investors are at it again as they collectively kick off the month of August in a persistently bullish manner. Microsoft is largely responsible for Wall Street’s wherewithal.
Shares of Microsoft are up about 4.50% in Monday’s session, helping to muscle the Nasdaq Composite higher by 1.25% to record levels. At the same time, the S&P 500 is up 0.75% at its best levels since February and just prior to the Covid-19 bear market.
Behind the strength, a blog post from Microsoft’s CEO Satya Nadella revealed the company is still pursuing its purchase of U.S. TikTok operations from Chinese start-up ByteDance. But that’s not quite the entire story.
Much to the relief of Wall Street, the Redmond, WA-based tech giant has maintained a dialogue with the White House during this process. And no matter one’s politics amid national security concerns regarding the popular app, a conversation of how to make the transaction agreeably work for all parties has lifted spirits and quelled broader, rising Sino-American tensions tied to the coronavirus.
Wedbush’s Dan Ives chimed in on the news, stating Microsoft appears to have the green light from the Trump administration. The analyst believes there’s a 75% – 80% probability the deal is consummated. And it’s an important acquisition for the company. The purchase represents a substantial bet into social media during a period when anti-trust concerns effectively prohibit mega-capitalization peers Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) and Facebook (NASDAQ:FB) from bidding on nothing short of a crown jewel within the space.
MSFT Stock Weekly Price Chart
Source: Charts by TradingView
Monday’s outsized gains in Microsoft may be just the beginning of another strong leg higher for the company’s shareholders. Following a massive rally off its March bear market low to all-time highs, the past four weeks have been spent constructively consolidating those gains in a flat or cup-shaped base.
With the stock near $214.50, a bonafide pattern breakout and record highs for Microsfot is less than 1% above current levels at $216.39.
Supported by a neutralized stochastics indicator on the cusp of a bullish crossover signal, buying shares on a nearby breakout looks even more attractive. If a rally proves to be as fierce as its predecessor, investors could be looking at Microsoft fetching upwards of $275 by year’s end.
It sounds great, right? It should. But for like-minded investors with the desire to position more securely in a stock market with no guarantees, I’d advise using Microsoft’s options market to your advantage. With earnings risk out of the way, I like approaching a stock purchase as part of a collar strategy offshoot.
The proposed variation reasonably protects the underlying stock position with a bear put spread rather than a standalone put contract. Identical to the collar, this investor finances some portion of the insurance afforded by the vertical with a measured out-of-the-money call sale.
Reviewing Microsoft’s calls and puts markets and in relation to how shares are setting up on the price chart, on a breakout backed by a signal from stochastics, it’s our view a long September $205 / $190 put spread and short September $135 call combination looks about right.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under management do not currently own any securities mentioned in this article. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits