Following Microsoft's Q4 earnings, which resulted in a remarkable $450 billion increase in market capitalization in just one day, the immediate risk surrounding the stock has diminished. Despite concerns about rising AI capital expenditures, the company's fundamentals remain strong.
An attractive trading strategy involves selling a short strangle on Microsoft, specifically the August 21st weekly $412.50/$485 options. This strategy allows investors to collect a premium of $7.30 per share, translating to a yield of approximately 1.6% over 21 days, or an annualized return of about 28%.
The downside protection provided by the $412.50 put option establishes a break-even point at $405.20, while the $485 call option requires a significant rally of over 8.5% to pose a risk. This trade is particularly appealing as it aligns with Microsoft's stable valuation, currently at around 22.6 times forward earnings, which is consistent with its historical range.
The strategy is designed to capitalize on the post-earnings volatility while managing risk effectively, making it a compelling option for investors looking to leverage Microsoft's strong market position