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Nov. 21, 2012, 12:49 p.m. EST

Is Microsoft a $27 stock?

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About Andrew Giovinazzi

Andrew Giovinazzi was a member of both the Pacific Exchange and the Chicago Board Options Exchange where he made markets in both equity and index option classes. During that period he never had a down year. In 1991, Andrew started and ran the Designated Primary Market Maker post for Group One, ltd in Chicago. In 2001, he co-founded Henry Capital Management. He became Chief Options Strategist and Option Pit Mentoring in the Fall of 2011. Andrew has a Bachelor's degree from the University of California, Santa Cruz in Economics. /conga/trading-deck/bios/giovinazzi_andrew.html 230100
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By Andrew Giovinazzi

Is Microsoft Corp. a $27 stock?

Holidays are time for fun, family and option decay. All of them will be in abundance over the next five weeks or so as the market winds up what has been an ok year. Our so-called fiscal cliff is alive but I am a believer in known events being priced in.

The fact the market peeled off of its pre-election highs was a signal to the politicians that business as usual is not something the market wants. As opposed to most of the time, the market wants them to "do something". Right now it is just a matter of adding up some numbers. Everyone is going to have to give a bit and once we know what that is the market will be better for it. What the market does not like right now is Microsoft /zigman2/quotes/207732364/composite MSFT -0.98%  .

Microsoft is trading about the lows of the year. There are some worries that Surface is not really selling well or that Windows 8 will be disappointing. My take on this is that the smartphone is a touch device and everyone loves it. Microsoft is starting to bridge the gap on the computer to a touch screen. The company bought Perceptive Pixel (PPI) in 2012 which is a cutting edge touch screen hardware maker. You most likely have seen their products during the election on the touch screen electoral map during a broadcast. Touch is a trend that will continue and Microsoft is taking a cue from Apple Inc. The negative side here is that Microsoft had a flat earnings year in 2011 and the steward of Window 7 and 8 just left the company. The thing that is most interesting now is the stock price, and it is dirt cheap.

The company could buy itself out in six years or so just from cash on the balance sheet and free cash flow. The option trade for a Microsoft investor has to discount the time right now.

As I said earlier there most likely will be some action by politicians. After any deal gets done there is enough cash on the sideline to propel stocks into January. I am expecting what is left of the implied volatility to decay even faster through the balance of the holidays. The trade is selling 2 Microsoft Jan. 24/26 put spreads for .35. This is a nice return on risk for a 65-day hold.

The author has a position in Microsoft.

US : U.S.: Nasdaq
$ 333.33
-3.30 -0.98%
Volume: 7.99M
Nov. 30, 2021 10:54a
P/E Ratio
Dividend Yield
Market Cap
$2527.41 billion
Rev. per Employee

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