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Microsoft Corporation (MSFT) Stock Can Double Your Money

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Microsoft Corporation (NASDAQ: MSFT ) has been a premier tech giant for decades. Sure, it has had its fair share of flubs - many people still cringe at the failure that was the Zune - but overall, management is solid, and MSFT stock isn't too dependent on any one individual.

Trade Microsoft Corporation (MSFT) Stock for Free Profits

Source: Johannes Marliem Via Flickr

Bill Gates has created a diversified cash cow system that diffuses impacts of potential errors.

Technically, the daily short-term chart suggests that more upside in MSFT stock price is likely. But I have to acknowledge that the longer-term weekly chart is more pessimistic than the daily chart.

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So the theme for today's trade idea? "Don't overstay your welcome."

How to Trade MSFT Stock Here

The bet: Buy the Mar $65/$67.50 debit call spread for 60 cents per contract to open. This is the maximum I can lose.

Buying a spread near the money always statistically carries a coin-flip odds structure for winning. But on the flip side (pun intended), as soon as Microsoft stock rallies, I start gaining. Furthermore, if the rally retests recent highs, I stand to double my money.

To mitigate my risk, I can sell downside premium against MSFT stock to lower my out-of-pocket expense. I only do this in stocks that I believe have a solid base that most buyers would be willing to buy on dips.

The hedge (optional): Sell the MSFT Oct $52.50 put for $1.10 to open.

By selling a naked put, I commit to buying Microsoft stock at the sold strike. Statistically, the 18% buffer from current price gives me a 90% theoretical chance of success. If MSFT stock falls through my strike sold before mid-October, I would be put the stock at $52.50 per share. If so, anything below $51.40 would accrue losses for me.

I can restructure the hedge trade to better suit more conservative traders.

The twist (optional): Sell the MSFT Oct $55/$52.50 credit put spread. This is also a bullish trade for which I collect 45 cents per contract to open. This has a slightly smaller buffer from current price but not too aggressively so. If successful, this trade would yield 20% on money risked.

If the MSFT stock price stays above my sold put strikes, then any premium I recapture by selling the debit calls spread would be pure profit. This means I don't need Microsoft to rally for me to profit. I simply need it to stay above my sold downside risk.

I am not required to hold my Microsoft options open through expiration. I can close any of them for partial gains or losses at any time.

Nicolas Chahine is the managing director of SellSpreads.com . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic .

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The post Microsoft Corporation (MSFT) Stock Can Double Your Money appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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