Buying A Call Option on Microsoft (MSFT)
Buying A Call Option On Microsoft (MSFT)
Earnings season is typically very interesting for options traders because of the opportunities it can present. There are usually lots of big moves and a fair amount of overreaction (or under-reaction in some cases).
Much of what a stock does after its earnings are announced is based on what expectations were heading into the announcement. There are plenty of times when it doesn’t matter what the company actually says in its quarterly report. It only matters how the numbers came in compared to what was expected.
Of course, stock moves based on expectations can be irrational and short-lived. That’s where options traders can make their splash.
Take Microsoft (MSFT) for example.
MSFT, of course, is the largest software company in the world and best known for its Windows operating system. However, as PCs give way to mobile devices, Windows has begun to lose steam.
In the most recent earnings, investors were disappointed when MSFT gave less than expected growth projections for next quarter. It caused the shares to sell off the next day.
Currently, the stock’s trading at $41.40, down 11% year-to-date. That’s 19% from the 52-week low of $34.74, but 17% from the 52-week high of $49.74.
So is now the time to buy a call option on MSFT?
As a reminder, a call option makes money when the underlying stock goes up. But MSFT disappointed investors. So is it worth it?
For a more in-depth look at MSFT, you can check here.
Here’s the deal…
Digging a little deeper into MSFT’s numbers, the story isn’t nearly as bad as it seems.
First off, the company is starting to gain traction selling its Surface tablets. Keep in mind, Surface tablets were initially a failure. However, last year MSFT sold $1 billion-worth of the product. That’s hardly a commercial failure.
Moreover, the company is picking up steam selling its mobile phones. Yes, Windows phones only have 3% share of the market, but it is slowly increasing.
In addition, Microsoft’s Bing search engine has captured about 20% of the market. That’s a huge step up from when it began, and not a paltry sum overall.
Most importantly, the company recently unveiled its groundbreaking HoloLens virtual reality product. It could be a real game changer. And, it’s probably the coolest thing the company has done in a decade.
Let’s take a look at a chart of MSFT:
As you can see from the chart, the stock got crushed after earnings. The share price is now significantly below the 50-day moving average.
Now could be a great time to invest in a MSFT call option.
MSFT still has plenty going for it. I believe investors overreacted and the stock will rebound in the near future. As such, the April 42 calls look attractive here.
At $1.15, the call starts making money at $43.15 or higher before April expiration. That’s still below the 50-day and 200-day moving average. And, it should be well within reach over the next couple months.
Yours in Profit,
Gordon Lewis
Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.
Category: Call Or Put Options?
