When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (MSFT) – STOP LOSS
SELL the Microsoft (MSFT) March 2020 $160-$170 in-the-money vertical BULL CALL spread at $7.60 or best
Closing Trade
2-24-2019
Expiration date: March 20, 2020
Portfolio weighting: 10%
Number of Contracts = 11 contracts
We have the 13th largest gap down in the history of the S&P 500 this morning, thanks to an exploding Coronavirus epidemic. That is testing our upper strike on our Microsoft call spread. As much as I love this company long term, in this environment, I would rather watch from the sidelines. It’s time to live to fight another day.
I am therefore selling the Microsoft (MSFT) March 2020 $160-$170 in-the-money vertical BULL CALL spread at $7.60 or best.
This is a bet that Microsoft shares would NOT fall below $170.00 by the March 20 option expiration date in 21 trading days.
It's also a bet that we are not currently in a recession, which I believe is still at least 12 months off.
Here are the specific trades you need to exit this position:
Sell 11 March 2020 (MSFT) $160 calls at.............................$15.00
Buy to cover short 11 March 2020 (MSFT) $170 calls at.......$7.40
Net Proceeds:......................................................................$7.60
Loss: $9.00 - $7.60 = -$1.40
(11 X 100 X -$1.40) = -$1,540 or 15.55%.
The optics today look utterly different from when Bill Gates was roaming around the corridors in the Redmond, Washington headquarter, and that is a good thing in 2018.
Current CEO Satya Nadella has turned this former legacy company into the 2nd largest cloud competitor to Amazon and then some.
Microsoft Azure is rapidly catching up to Amazon in the cloud space because of the Amazon-effect working in reverse. Companies don’t want to store proprietary data to Amazon’s server farm when they could possibly destroy them down the road. Microsoft is mainly a software company and gained the trust of many big companies especially retailers.
Microsoft is also on the vanguard of the gaming industry taking advantage of the young generation’s fear of outside activity. Xbox-related revenue is up 36% YOY, and its gaming division is a $10.3 billion per year business. Microsoft Azure grew 87% YOY last quarter.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Things to Keep in Mind
Remember, these are ballpark prices only. There is no telling how much the market can move by the time you get this.
Be sure you've signed up for our FREE text alert service. When seconds count, this feature offers a trading advantage. In today's market, investors need every advantage they can get.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don't execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile when close to expiration.
If you don't get it done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
