[Options] He Ain't No Mister Softee No More

Sean McLaughlin
August 5, 2020

Anyone who traded in the late 90's only referred to Microsoft stock as "Mister Softee." It was stupid, as many stock nicknames were, but that's what it was. And you seemingly couldn't go a day without hearing "Mister Softee is making new highs!" from summer 1998 until early 2000.

I almost have PTSD from it.

Fast forward to today. Microsoft doesn't get the same media attention today as it did back then, now being overshadowed by the Amazons, Facebooks, Googles, Apples, and Teslas, of the world. But the price action is definitely giving me flashbacks.

And the ASC research team has a gaudy 323 price target for Microsoft $MSFT over the next several months which has me interested in playing along with options.

First up, check out this monthly candlestick chart the guys shared in our recent Monthly Charts Strategy Session:

Is this a freight train you'd like to step in front of with a bearish position? Go ahead, be my guest. You might win, but why fight the trend?

Zooming in, here's a daily chart showing $MSFT about to break out of yet another high basing pattern:

Options volatility is relatively tame in the $MSFT options, but this being a higher priced stock and the risk that the rug can be pulled out from underneath the market has me interested in lowering my cost of participation. Therefore, I'm going to put on a bullish defined-risk call spread.

Here's the Play:

I'm buying a $MSFT November 220/260 Bull Call Spread for a $10.00 debit. This means I'll be long the 220 calls and short an equal amount of 260 calls. The most I can lose in this trade is the debit I paid at entry.

However, if $MSFT closes below $200 a share during my hold, I'll look to close the trade and limit my losses if possible.

The most this spread could be worth is $40 (the difference between the options strikes), which translates into a $30 profit if held all the way until expiration. However, I have no intention of holding this position that long if I can help it. I'll look to close the spread at around $25.00, which would represent capturing about 50% of the maximum possible profit. I'll leave a resting limit order at that price and I'll just take my profits and run when hit.

If any All Star Options subscribers have questions on this trade, please send them here.

We do trades like this multiple times per week. If you'd like to leverage Best-in-Class technical analysis research into directional options trades (we do delta neutral credit spreads too!), then come try out All Star Options Risk Free!

~ @chicagosean

 

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