New manufacturing data was released yesterday that showed expansion in business spending and investment.
In fact, the Institute for Supply Management’s (ISM) Purchasing Managers Index (PMI) is back into 2018-2019 levels. This is a forward-looking survey that can tell us a lot about sentiment in the economy.
We feel encouraged because the sentiment survey shows growing business investments, so we think this is the right time to open a new put write in Microsoft (NASDAQ:MSFT).
Expansion is Good for MSFT
Investment in software, collaboration tools, cloud storage and distributed workforce management are all areas where growth will positively affect MSFT’s value. The ISM’s report should mean there are good things on the horizon for MSFT.
But we think investors like it for another reason too. MSFT is one of the mega-cap technology stocks that investors have flocked to during this economic downturn.
If you recall, this started back in April, and while it isn’t the sole force driving the market higher anymore, the concentration in the FAANGM stocks is still very much with us.
In MSFT’s case, it might not be such a bad idea to buy. Analysts expect the company to raise its dividend in September, and even without a raise, MSFT is still a tech stock that pays a dividend.
In a near-zero interest rate environment, this stock offers the prospect of growth, the stability of being one of the largest tech companies in the world, and the dividend payout of a safer, less growth-oriented stock.
To state the point more directly: MSFT is a very appealing stock for investors.
Taking an Aggressive Position
After its breakout last week, we were concerned about a potential retracement from MSFT. Since then the stock has paused and retraced back from its highs slightly.
Because of that retracement, though, we are a lot more confident that support at $215 will hold in the short term and another breakout in September is likely.
Daily Chart of Microsoft Corporation (MSFT) — Chart Source: TradingView
Selling a put write with a strike price at MSFT’s support level is an aggressive strategy, but it will net you a decent premium. We recommend looking at options in mid-to-late September because they don’t obligate you too long in the trade.
If you want to take on less risk, you should look at options that expire sooner, rather than later. Just remember, the premium won’t be as large.
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.