As Microsoft prepares to release its earnings report next week, the company stands in a favorable position to benefit from the increasing demand for artificial intelligence and cloud computing services. This optimism is reinforced by the recent growth in cloud revenue reported by Alphabet, setting a positive tone for Microsoft’s upcoming performance.
Amidst a recent pullback to a key support level of $430, which previously served as a resistance level, Microsoft presents an attractive opportunity for bullish traders. This retracement offers a compelling entry point with reduced downside risk, especially after the stock bounced off this crucial support level earlier in the week.
Microsoft’s relative strength compared to the S & P 500, as well as its momentum leading up to the earnings announcement, paint a positive picture for the tech giant. Additionally, the company’s valuation at 32x forward earnings, representing a premium to the average S & P 500 stock, is justified by its industry-leading margins and projected earnings per share and revenue growth.
Trade Strategy
To capitalize on the bullish sentiment surrounding Microsoft ahead of its earnings release, a strategic approach involves selling the Aug. 30 $445/$425 Put Vertical for a credit of $7.50. This trade structure entails selling the August 30 $445 Put at $14.18 and buying the August 30 $425 Put at $6.68. By utilizing a put vertical spread, traders can benefit from MSFT’s anticipated strength while effectively managing risk.
The potential profit from this trade is $750 per contract if Microsoft remains above $445 at expiration, while the maximum risk per contract is $1,250 if the stock falls below $425 by expiration. The breakeven price for this trade is $437.50, providing a 1.6% downside cushion from the current stock price.
Disclosure and Disclaimer
It is important to note that the opinions expressed in this trade strategy are solely those of the individual contributor and do not necessarily reflect the views of CNBC or its affiliates. Additionally, all trading decisions should be made after careful consideration of one’s unique financial circumstances and with the guidance of a qualified financial advisor.
Microsoft’s positioning in the AI and cloud computing sectors, coupled with its recent support level bounce and positive momentum, present a compelling case for a bullish trade strategy ahead of its earnings report. By carefully assessing the market conditions and implementing a structured trade plan, investors can potentially benefit from Microsoft’s favorable outlook in the technology industry.
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