DailyPlay – Opening Trade (MSFT) – July 26, 2024

MSFT Bullish Opening Trade Signal

Investment Rationale

Heading into earnings next week, Microsoft is positioned to continue capitalizing on the growing demand for AI and cloud computing services, underscored by the cloud revenue growth reported by Alphabet this week. The company’s leading position in AI and cloud computing makes it a compelling trade for next week. The recent pullback to a major support level and recent outperformance provides an attractive risk/reward opportunity to add bullish exposure before it reports.

Technical Analysis

MSFT has recently pulled back to a significant support level at $415. This pullback provides a favorable entry point with reduced downside risk. Lastly with relative strength of MSFT compared to the S&P 500 remaining positive, and momentum is starting to turn positive again, this provides a bullish signal heading into earnings next week.

MSFT – Daily

Fundamental Analysis

From a valuation perspective, MSFT trades at 31x forward earnings, which represents a 50% premium to the average S&P 500 stock. However, this valuation is potentially justified given MSFT’s industry-leading margins and expected EPS and revenue growth rate of 16 and 15% respectively, driven by its strong presence in AI and cloud computing. Industry leading net margins of 36%, indicates both a highly efficient operation and high profitability on revenues.

Trade Details

Strategy Details

Strategy: Short Put Vertical Spread

Direction: Bullish Credit Spread

Details: Sell to Open 1 MSFT Sept 6th $420/$395 Put Vertical Spread @ $9.45 Credit per Contract.

Total Risk: This trade has a max risk of $1,555 (1 Contract x $1,555) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,555 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bullish trade on a stock that is currently bearish but expected to bounce higher off support.

1M/6M Trends: Bearish/ Mildly Bearish

Relative Strength: 3/10

OptionsPlay Score: 91

Stop Loss: @ $18.90 Debit. (100% loss to the value of premium)

View MSFT Trade

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 Thursday’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. 

View MSFT Trade