DailyPlay – Opening Trade (MSFT) – October 2, 2023

MSTF Bearish Opening Trade Signal

View MSFT Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 2 Contracts Nov 17th $320/$340 Call Vertical Spreads @ $7.30 Credit per contract.

Total Risk: This trade has a max risk of $2,540 (2 Contracts x $1,270) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,270 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bearish trade on a stock that is in a bearish trend.

1M/6M Trends: Bearish/Neutral

Technical Score: 8/10

OptionsPlay Score: 102

Stop Loss: @ $14.60 Debit (100% loss).

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Friday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

Markets are breathing a sigh of relief after a government shutdown was averted over the weekend and futures markets are rallying as a result. However, equities remain currently below major support levels and requires a decisive rally to break back above them to maintain a neutral view. Our base case remains that rallies are opportunities to sell into and establish new bearish positions. With 10-year rates now pushing 4.6%, high-valuation stocks that have seen strong multiple expansion without strong revenue and EPS growth are at risk of pulling back. Especially ones that rallied on the back of the AI hype.

MSFT sits at the intersection of this crossroad and recently broke below a major support at $320 with elevated implied volatilities. I’m looking to establish a neutral/bearish trade by selling the Nov $320/$340 Call Vertical @ $7.30 Credit. With a hypothetical portfolio of $100,000, I recommend risking 2% of the portfolio’s value to this trade, which is 2 Contracts for a risk of $2,540. We will set a stop loss on the put spread at 100% of the premium collected @ $14.60 Debit.

MSFT – Daily