Microsoft (MSFT) – Trade Idea

Company Description

Microsoft Corporation is a technology company. The Company develops, licenses, and supports a range of software products, services and devices. The Company’s segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. The Company’s products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services. Source: Reuters.


Open Interest

Option Pricing

IV Implied VolatilityRV Realized VolatilityIVP Implied Volatility Percentile

Trade Idea

MSFT common shares are up 43.5% YTD, outperforming both the S&P500 as well as the Nasdaq100. We believe that the stock is likely to maintain its bullish momentum.

Our thinking:

  • On 10/28 Microsoft cleared a significant level of resistance after trading sideways for about 3 months. Why did this happen? The tech giant was awarded a $10 billion cloud computing contract by the Pentagon — beating out Amazon (AMZN);
  • Ever since, the equity has been trading sideways with coiling price action. Over time this will be resolved. In our opinion this is likely to happen to the upside for three reasons: 

(1) Momentum is bullish as the stock trades above its key moving averages (200-Day SMA, 50-Day SMA, 21-Day EMA, 10-Day EMA) in a stacked fashion;
(2) Previous overhead resistance became support at the ~141 level;
(3) Momentum factor — as a strong YTD performer, MSFT is likely to see strong inflows from strategies that focus on momentum (IE. leaders vs laggards baskets).   

Based on this rationale, we look for a move higher in the next 46 calendar days.

Buy127 Dec146Call
Sell127 Dec155Call

Break-even on Dec expiration:

  • Profits of up to $6.32 between 148.68 and 155.00 with max gain of $6.32 at 155.00 or higher

  • Losses of up to $2.68 between 148.68 and 146.00 with max loss of $2.68 below 146.00

PnL Graph

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