Microsoft Stock and Fast Stochastic Identifies Put Selling Chance

Microsoft stock as many readers know is a favorite of mine. Microsoft Stock Symbol is MSFT and it trades on The NASDAQ. Over the past 10 years Microsoft Stock has provided me with double-digit returns. On May 2 2012, news from Germany that a judge was ordering Microsoft to stop selling Windows operating system within the country unnerved investors and sent Microsoft stock lower. The stock was already under pressure and I had watched the stock with the Fast Stochastic for my other trades in the stock. One of those trades is my Microsoft Stock $33 covered calls. I purchased Microsoft stock back in January and I am not interested in selling it yet. However a few weeks earlier the fast stochastic identified that Microsoft Stock was going to stall and I sold covered calls to earn the income and reduce my cost of ownership. Meanwhile though the news out of Germany moved the stock to $31.64 and the May $31 puts became attractive. I sold 10 Microsoft stock puts for $0.25 cents for the next 3 weeks risk of having my capital assigned to the shares.

Microsoft Stock Using The Fast Stochastic

The strategy below can be used on any stock. Microsoft stock in February 2012 shot up to $31.00. This valuation had been resistance from early in 2010 when Microsoft stock had shot up. You can see on the Microsoft Share Price History chart below that period in February. Once $31 was decisively broken the stock tested support at $31 for a period of 5 trading sessions and then moved higher.

In early April Microsoft stock pulled back and fell right to support at $31.00. It spent just two trading sessions lower and then moved back up to the $31 support valuation. From there the stock shot up to above $32.00 on the earnings news and has wandered lower since.

The fast stochastic is a great tool to use for following stocks. As explained in many previous articles, I like to draw a line on the fast stochastic at the $70% and 30% settings. Anything above 70% marks overbought. You can see how the jump up after the earnings announcement marked an overbought range and the stock has worked itself lower. The last two trading sessions the stock has fallen slightly but the fast stochastic has fallen the most. This indicates that buying pressure has eased in the stock and the stock call pull back further.

Microsoft stock history chart and the fast stochastic

Microsoft stock History Chart and The Fast Stochastic

Microsoft Stock And Covered Calls

Whenever the Fast Stochastic is above 70%, an investor interested in covered calls should consider keeping a watchful eye on the stock and prepare for covered call selling opportunities particularly if they are not interested in giving up their shares. It’s important to realize though that when a stock rises dramatically such as Microsoft Stock did earlier this year, analysts and pundits of all description will be talking a storm and pointing out how the stock is going to propel to $40.00 or even higher, how everyone is back buying it, how the old days of it being stuck in a range are over and basically just talking. Talking is what these people do best and I ignore it all the time. No one can say where the stock could be headed but when a stock climbs dramatically it will not shoot up overnight. There is up and down and sideways action and it might surprise investors how many times stocks that are rising dramatically actually turn tail and fall right back to their old trading ranges.

A covered call investor can use the Fast Stochastic to sell covered calls near or even at the money when the fast stochastic flashes that overbought signal. Anything about 70% tells covered call investors to prepare to sell covered calls.

If the covered call investor does not want to lose his shares, then sell those covered calls out of the money and only one or two months out in time. Stocks move around a lot and if the fast stochastic is flashing overbought, the stock might stall for a month or even two but it can always surprise to the upside. By selling for a shorter duration the investor has a better chance that the stock could take a month to work out the overbought condition before moving higher. That is all the stock needs.

Microsoft Stock And Taking Opportunity

I have written many times about the importance of having a plan and having goals. If a specific stock such as Microsoft Stock is on your radar, it pays to watch it and learn the price points you would be interested in owning shares. Learn to use the fast stochastic to pinpoint prime covered call selling opportunities and put selling chances.

If you are the investor who never wants to own shares then wait for the fast stochastic to fall below 30% and look to the $29 or $30 put for put selling opportunities. If you do not want to own stocks you must wait for the proper signal before engaging in put selling. Microsoft Stock is not below 30%. I sold the $31 put today as I believe the stock has a good chance of not falling much below $31 and will give me the opportunity to sell the $31 put again into June. I do not mind owning the shares.

But if your goal is not to own the shares then you must wait for a solid oversold indicator from fast stochastic before selling your puts, otherwise you are selling puts too early and can easily be assigned as the stock could fall below $31.00.

Microsoft Stock and Support And Resistance

It is valuable for investor to look for support and resistance levels in a stock. In Microsoft Stock I can clearly see where support and resistance lies. However if the $31 support should break, then support lies a lot lower in the stock.

When you look at the past year and take into account volumes you can see that support in Microsoft Stock is a great deal lower. There is a lot of strength in the stock around the $26.50 level, but since moving above $28.00, there is very little support in the stock aside from the $31 level.

Therefore if the $31.00 level should break, the stock could easily work its way back to solid long-term support which is at the $26.50 level. Therefore when selling puts against Microsoft Stock or any stock, it is important to understand the risks associated with it.

Microsoft Stock History Chart

Microsoft Stock History Chart Showing Where Support Is Over The Past 1 Year

Microsoft Stock and Fast Stochastic Trade Summary

When trading a stock, goals are important. It is the goal that will determine how well or poorly your trade goes. If you sell puts at $31.00 for example and the stock falls to $29.00 will you be closing the trade for a loss or will you roll out and down or will you accept assignment of Microsoft Stock shares? If your goal is to own shares then you want to maximize the amount of capital you can earn prior to actually picking up shares. My strategy over the past three years has earned me over $25,000 through put selling the stock and buy and selling the stock at various times. If I was assigned all 15 put contracts I am holding, I would end up with 1500 Microsoft Stock shares with an average price of $13.06.

You can understand why I am unconcerned about being assigned shares. Since I have earned so much income to this point in my Microsoft trade I can select higher put strike prices and not worry about assignment. But for those who do not want the stock or have no interest in being assigned shares, obviously staying with the fast stochastic and watching for the best oversold signals to sell puts is a strategy that should be used rather than the strategy I am taking for Microsoft Stock.

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