Weekend Trader Series
December 11, 2022
Open Positions Update
There are no portfolio updates this week.The following is this week's recommendation:
Microsoft (MSFT)Place a limit order to buy the Microsoft (MSFT) February 17, 2023 260-strike put at a limit price within range of the current market asked price when you place your order. At the close on Friday, December 9, this option was offered at $22.55. MSFT closed at $245.42 on Friday, December 9.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Tuesday, January 17, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Shares of Microsoft (MSFT) failed earlier this week at the round $250 area, which was a 50% retracement of their August high and November low. This area is also around the equity's late-October, pre-earnings close of $250.66, which preceded a gap lower on the charts. MSFT's 150-day moving average is situated just above the $250 level, and a key top occurred at this trendline in April 2022 that marked a significant low in January 2021. Given this weak technical setup, we're recommending a new short position on Microsoft stock.
When looking at all options on MSFT expiring through the January standard expiration, the 250-strike is home to the heaviest call open interest. If the shares remain below $250, they could experience weakness related to out-of-the-money calls getting set to expire in coming days and weeks.
Microsoft stock is down 26% in the last 12 months, and stands 27% lower in 2022. Analysts are still bullish despite this, with 46 rating the equity a "buy," versus five "hold" recommendations. Short interest also stands at a level at which builds in short interest have begun in the past three years. Also, a 30% decrease in short interest from mid-June through the last reporting period failed to produce a significant rally, which is a considerable red flag.
Our recommended February 260-strike put has a leverage ratio of 6.6, and will double in a 12.4% drop in the underlying stock.
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