Cheap put options and an overvalued stock suggest a potential put play in Microsoft (MSFT).
Both the S&P 500 and NASDAQ 100 closed at recent highs on Friday. However, the equally weighted S&P 500 and NASDAQ 100 have yet to reach those levels.
This year, mega-cap stocks like Apple, Nvidia, and Microsoft have outperformed, leading to a divergence between cap-weighted QQQ and equal-weighted QQQE.
Despite the indices closing higher, mega-cap leaders such as Microsoft (MSFT) showed signs of struggles on Friday. Is it time to consider fading the rally in these high-flying names? Let’s utilize the POWR Options process to analyze Microsoft and explore trade opportunities with a probabilistic edge.
Valuation
On a valuation basis, Microsoft stock is becoming expensive once again. The current Price/Sales (P/S) ratio is at its highest level since January 2022.
Even with the 10-year Treasury yield over 4% and the Fed Funds rate at 5.25% to 5.5%, Microsoft’s lofty multiples are challenging to justify.
Technicals
From a technical perspective, MSFT stock is showing weakness, struggling to break past the $380 area. Various indicators suggest potential downside.
Implied Volatility
Implied volatility (IV) is at the lowest levels in the past year, indicating that option prices are cheap. This presents trade opportunities for investors/traders.
Considering all these factors, using a fusion approach to analyze MSFT suggests potential buying opportunities for put options on an overvalued and overbought MSFT stock.
POWR Options
What To Do Next?
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Best,
Tim Biggam
MSFT shares closed at $374.51 on Friday, with a year-to-date gain of 57.55%.
About the Author: Tim Biggam
Tim Biggam is an experienced options strategist with a strong background in the trading world. He makes regular appearances on Bloomberg TV and contributes to the TD Ameritrade Network “Morning Trade Live”. As the editor of the POWR Options newsletter, Tim’s passion is to make the complex options trading world more understandable and useful for everyday traders.
Read more articles by Tim Biggam.
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