Analysis and Earnings Trade Ideas for Microsoft

Microsoft ($MSFT) moved out of a consolidative channel in October with a gap higher. It came back to fill that gap in November and has traded higher, running up over trend support ever since. The parallel rising SMA’s show how strong the trend is. longer term it looks as if this trend should continue.

In the short term though it has moved a lot this week. Monday it gapped higher again, continuing the move out of consolidation from Friday. This took the price out of the Bollinger BandsĀ®, making it a bit overheated from that perspective. Tuesday moved slightly higher in a tight body candle and it has moved sideways since. The RSI is also a bit overheated, in the technically overbought zone, and possibly turning down. The MACD is just moving higher unabated.

There is no resistance above the all-time high intraday at 68.31. Support lower may be found at 67.50 and 66.25 followed by 65 and 64. The stock has averaged a 6.17% move following the last 6 earnings reports. This would make for a range of 63.50 to 72. The at-the-money Straddles expiring this week suggest options traders are looking for a smaller 3.9% move, or $2.65.

Implied volatility is elevated at 85% when compared to the May options chain where it is only 23%. Open interest builds from 61 to the peak at 65 on the put side. It falls from there to 67.5 and then is spiked at 68. On the call side it builds from 65 to a peak at 70 three times the size of the put side peak and then fades after 72. Open interest is much bigger on the call side.

Trade Idea 1: Buy the April 28 Expiry 67.5/66 1×2 Put Spread for free.

Trade Idea 2: Buy the April 28 Expiry 67.5/66/65 Broken Wing Put Butterfly for 34 cents.

Trade Idea 3: Buy the April 28 Expiry/May 70 Call Calendar (20 cents) and sell the April 28 Expiry 64.5 Put for a 5 cent credit.

Trade Idea 4: Buy the May 68/April 28 Expiry 70 Call Diagonal ($1.00) and sell the April 28 Expiry 65 Put for 66 cents.

the first trade gives downside exposure to 66 and may put the stock to you at a basis of 64.5 on a close under 66. Trade 2 also gives the downside exposure, and is profitable on a close anywhere under 67.16 tomorrow. Trade 3 gives the upside longer term and looks for the large open interest at 70 to stall any upside move tomorrow. it also may end up with stock put to you if it closes under 64.5 Friday. Trade 4 is similar to Trade 3 but starts participating in the upside faster with risk of being put the stock under 65.

I like Trade #1 for those looking to own the stock lower. And Trade #4 for a longer holding period. I hold stock in IRA’s for family, and am long via options for clients as of this writing. Trades like these are part of the Dragonfly Capital Premium Product everyday along with 10 stock trade ideas each Sunday and weekly Macro Market analysis. You can join here

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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