{"id":26420,"date":"2026-02-25T07:30:00","date_gmt":"2026-02-25T12:30:00","guid":{"rendered":"https:\/\/jeffclarktrader.com\/market-minute\/?p=26420"},"modified":"2026-02-24T14:02:54","modified_gmt":"2026-02-24T19:02:54","slug":"today-ill-show-you-how-to-trade-microsofts-rally","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/today-ill-show-you-how-to-trade-microsofts-rally\/","title":{"rendered":"Today I\u2019ll Show You How to Trade Microsoft\u2019s Rally"},"content":{"rendered":"

Shares of Microsoft (MSFT)<\/a> are setting up for a multi-week rally.<\/p>\n

And today, I’ll show you how I’d trade it.<\/p>\n

Two weeks ago<\/a>, I argued that MSFT was oversold enough to put on a quick bounce. But, it didn’t quite have the sort of technical setup that fuels a sustained rally. So, I was willing to sell short-dated uncovered puts on MSFT. But, I wasn’t yet willing to speculate with buying call options.<\/p>\n

Sure enough, MSFT did enjoy a quick bounce – which allowed the uncovered puts to expire worthless. Anyone taking that trade would have pocketed $400 per contract. And, the stock has since fallen back to make a lower low, and given us a better price at which to buy speculative calls.<\/p>\n

Here’s the updated chart…<\/p>\n\n\n

\"\"<\/figure>\n\n\n

Click here to view expanded chart<\/em><\/p>\n

MSFT closed Monday right on support near $385 per share. That\u2019s the line connecting the former resistance from last April \u2013 which is now support.<\/p>\n

This current price is below the previous low set earlier this month. Notice, though, as the stock has made a lower low, the momentum indicators at the bottom of the chart are making higher lows.<\/p>\n

This sort of \u201cpositive divergence\u201d indicates the momentum behind the decline is waning. It\u2019s an early warning sign of a potential rally.<\/p>\n

This positive divergence did not exist two weeks ago. So, while we suspected MSFT could put on a quick bounce, we also suspected the stock was not yet ready to mount a sustainable rally. Any bounce from that condition was likely to be short-lived and MSFT would come back down to form a lower low.<\/p>\n

That is exactly what has happened.<\/p>\n

Now, though, with the positive divergence in place, we can be more confident in the prospects for an intermediate term rally. And, we can buy speculative calls.<\/p>\n

Remember, though, options are designed to reduce risk. So, any trade we set up using options should limit our loss to less than what we\u2019d be willing to lose on the stock itself.<\/em><\/p>\n

For example, let\u2019s say we\u2019re willing to buy 100 shares of MSFT at $385 per share. That\u2019s a total investment of $38,500. Let\u2019s also say that we\u2019re willing to risk a 10% move in the wrong direction. In other words, if MSFT falls $38.50 to $346.50 we\u2019d cut our losses and stop out of the trade. So, we\u2019re willing to risk $3,850 on this investment.<\/p>\n

In order to reduce my risk, I\u2019ll take something less than that $3,850 over to the option market and create a trade.<\/p>\n

In fact, I\u2019ll cut my risk by more than half <\/em>and use just $1,800 on an option trade.<\/p>\n

So, rather than putting up $38,500 to buy 100 shares of MSFT, I\u2019ll put up just $1,800 to buy call options. The rest of the money can sit safely in cash in my brokerage account. Rather than risking a 10% loss on the stock \u2013 which is $3,850 \u2013 I\u2019ll risk $1,800 on an option trade.<\/p>\n

The MSFT March 20 $392.50 calls closed Monday at $8.75. For the sake of this example, and to make the math easier, let\u2019s round that up to $9.00. We can buy two of these contracts for $1,800.<\/p>\n

Rather than buying 100 shares of stock, the two call options give us exposure to 200 shares. So, we have the potential for a larger gain if MSFT rallies. And, we\u2019ve limited our loss to less than half of what we were willing to risk on the stock.<\/p>\n

My upside target for MSFT is the next resistance line near $430. If MSFT can get to that level by the expiration date of the options (March 20) then the option will be worth at least $37.50.<\/p>\n

We paid $9 for each option. By selling them for $37.50 we\u2019ll realize a gain of $2,850 per contract, or $5,700 on the total trade.<\/p>\n

Alternatively, if we had purchased 100 shares of stock instead at $385 per share, we\u2019d be up $45 per share, or $4,500 total.<\/p>\n

By using call options instead of buying the stock, we\u2019ll reduce our risk on the trade AND we\u2019ll increase our profit potential.<\/p>\n

This is the right way to trade options.<\/p>\n

Best regards and good trading,<\/p>\n

\"Signature\"<\/p>\n

Jeff Clark
Editor, Market Minute<\/em><\/p>","protected":false},"excerpt":{"rendered":"

By using call options, we can reduce our risk AND increase our profit potential.<\/p>\n","protected":false},"author":100,"featured_media":0,"comment_status":"closed","ping_status":"0","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-26420","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/26420","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/100"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=26420"}],"version-history":[{"count":1,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/26420\/revisions"}],"predecessor-version":[{"id":26426,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/26420\/revisions\/26426"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=26420"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=26420"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=26420"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=26420"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=26420"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=26420"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=26420"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}