A few weeks ago, I shared a trade idea in Microsoft Corporation (NASDAQ:MSFT) from which I was lucky enough to scalp profits. Although I believe in the longer-term story, we could see temporary resistance in MSFT stock — at least in the short-term.
I’m still steadfast in the thesis that, given the current macroeconomic environment, stocks will at worst meander for months. Thus, I have a trade setup that will let time make us money.
Microsoft’s fundamental prospects remain solid. So, in the absence of a new bearish headline, MSFT stock should trade right along with the general equity markets. The short-term macroeconomic picture is riddled with nagging issues that could cause dips, but bulls have been buying them back up.
Because of Microsoft’s solid fundamentals, I want to put more time on the clock so I don’t have to worry about short-term price gyrations.
This is not the kind of trade idea you can use in unproven stocks like Snap Inc (NYSE:SNAP), by the way.
How to Trade MSFT Stock Here
The bet: Sell the Jan 2018 $50 put for $1.50 per contract. This is a bullish trade that assumes Microsoft stock will stay above my sold strike through next January.
By selling the put, I have committed to buying the shares at $50 if MSFT stock falls below that threshold. The current price buffer gives this trade — in which I’m betting that support levels established in 2014 will hold — a 90% theoretical chance of success.
Selling naked puts is not suited for all investors, however. That’s OK. I can modify the trade into a credit spread. This would make it more appealing to less aggressive traders or smaller accounts.
The alternate: Sell the Jan 2018 $52.50/$50 credit put spread. This is still a bullish trade, but one that has a finite risk profile. For that, I sacrifice some buffer and potential profits since with limited risk comes limited profit potential. If successful, though, this trade on MSFT stock will still yield 15% on risk.
Selling options can be dangerous, so never risk more than you are willing to lose.
Nicolas Chahine is the managing director of . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at and stocktwits at .
