Update on MSFT Calls: 2 Months Later

It is exactly two months today that I wrote about trading options of Microsoft Corporation (NASDAQ:MSFT) in a post titled “Is Microsoft Corporation An Aging or Raging Bull.” In that piece, I explored Microsoft’s key ratios as well as its cost-cutting initiatives as reasons to stay bullish on the stock.

Microsoft with its market capitalization of $386.12B is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers.

When I wrote that piece, shares of Microsoft were trading around $44 per share and I placed a $50 price target on the stock by January 2015. I then recommended a cautiously bullish bet with the MSFT Jan 2015 45.000 Call. As at market open today, shares of Microsoft were trading around $46.76 per share and the Jan 2015 45.000 call opened at $2.87 after rising 12.11% yesterday.

Reasons to Remain Bullish On Microsoft

  • Rewarding Shareholders with an Increase in Dividends

I woke up to news that Microsoft has announced an 11% increase in its quarterly dividend to $0.31 per share this quarter. This marks the fifth consecutive double-digit dividend increase for the company as its annual yield now stands at 2.65%. You will remember that Microsoft has been increasing its payout every year (except 2009) since the introduction of a quarterly dividend in 2004.

I strongly believe that a raising of dividends is great news for Microsoft investors on the solid increase of more than 10%. Many large cap tech stocks have been focusing more on share buybacks lately instead of returning gains to investors through dividends. Hence, the fact that Microsoft is rewarding its shareholders will sustain the bullish action on the stock.

Microsoft will pay the $0.31 dividend to shareholders on record on Nov. 20, 2014 and the ex-dividend date is Nov.18, 2014. I strongly believe that the buying action of income hunters will see the stock touching my initial $50 price target before the end of this year.

  • An Interesting Acquisition

On Monday, Microsoft announced the acquisition of Mojang AB, the maker of the “Minecraft” videogame. The acquisition, which costs a paltry $2.5B when considered in light of Microsoft’s huge cash position, might be instrumental in kicking some life into Microsoft’s mobile platform.

It might interest you to know that more than 50 million copies of “Minecraft” has been sold to PCs, smartphones, and videogame consoles since 2009. According to Mr. Kent Wakeford, COO of Kabam Inc. “it is expected that the “great content will drive the ability for Microsoft to expand the sales of its platforms, and bring it to new devices.”

  • Eyeing Greater “Mobile” Market Share in Emerging Markets

The Windows 8.1 Encore Mini produced for Microsoft by Toshiba might turn out to be a game-changer as the company seeks to obtain a stronger foothold in the tablet market in emerging markets. The Encore Mini, which is currently priced at $119, might drop to $99 in a bid to add to Windows’ 2.1% global tablet sales.

Apart from the low price, the Encore Mini should hold its own against the competition considering the decent hardware and its capability to run software with its 1GB of RAM.

How to Trade MSFT Options

I remain bullish on Microsoft and my $50 price target by the end of this year still stands. However, I think Jan 2015 calls may no longer be smart because of time decay. I will set stop loss, sell if the contract drops to $2.60, and run with my 36% gains. In the meantime, I will buy the MSFT Apr 2015 44.000 call (MSFT150417C00044000), which still has much room to run at an asking price of $4.00.

— Daily Option Alerts

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