Today, we recommend entering a short-put trade on Microsoft Corp. (MSFT).
Despite some hiccups this quarter (Meta Platforms) A.I. continues to be a winning strategy for increasing profits and attracting investors. We have been watching MSFT carefully since earnings, and this looks like a good opportunity for a new bullish position.
MSFT's advantage over many A.I. peers is the largest install base to push A.I. products like Copilot. Most analysts expect Copilot to experience similar growth to MSFT's Azure cloud products, which beat estimates again last quarter by growing more than 30%.
Like most stocks in the tech sector, MSFT has been discounted back to support near $400 per share. Support is where we expect the stock to rise again, but because market conditions have been so choppy, it makes sense to use an income-based strategy like short puts over an outright long position.
We like the idea of selling puts with a strike price below technical support, which gives the shares room to swing back and forth if traders remain cautious this week. Additionally, Predictive Alpha still has a strong bullish projection (+2.18%) for the stock over the next four weeks, and the options are in "Zone 3," which indicates prices are in favor of put sellers.
To ensure you maintain as much control over your entry price as possible, we recommend you...
Set a limit order to sell to open the MSFT May 17, 2024 $390 Puts (MSFT240517P00390000) for a minimum price of $4.00.
Some traders prefer a short vertical put spread to an outright short-put position.
A spread has the advantages of limiting risk, a much lower margin requirement, less risk of exercise, and can be used in some retirement accounts. However, it will also result in a lower premium payment and return.
For traders interested in using a short vertical put spread, we recommend the following...
Set a limit order to sell to open the MSFT May 17, 2024 $390 Puts (MSFT240517P00390000) for a minimum price of $4.00.
Buy to open the MSFT May 17, 2024 $375 Puts (MSFT240517P00375000) for a maximum price of $1.50.
Note: The prices of the two legs of a vertical spread can shift quickly. We recommend targeting a net credit of $2.50. So, if the price of each leg has shifted beyond our recommended maximum or minimum, but a net credit of $2.50 is available, we still recommend the trade. If you are unfamiliar with spread trading like this, check out our educational videos below...
Timing is everything when it comes to these trades, so head to your app store now, download the free TradeSmith app, and enable push notifications… because the next great trade is right around the corner!
To view the entire Predictive Alpha Options portfolio, please click here.
Sincerely,
John Jagerson & Wade Hansen Analysts, Predictive Alpha Options
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