Thursday, October 23, 2008

Mr. Softie

So as we see Jerry Yang take a visit to the MSFT campus today in the picture to the left, lol. We wait for "the number". MSFT reports after the bell and as I type it sits at $21.50 a share. Cant believe it has gotten that low honestly. I would love to wave the all clear sign and say buy buy buy. But as much as I'm an optimist, I'm also a realist.

Tech spending does not rise during a recession so I would be of the opinion that MSFT could struggle in the near term. But overall I'm a chartist and technical analyst so lets check out the charts. 52 week low is all I need to say. MSFT is in a nasty downtrend that will take months to break out of. You gotta go back about 2 years to see MSFT around the 21 level. If it cant hold these current levels then it doesnt look promising as this thing can easily dip into the 18-19 range. Hopefully that doesnt occur, but like I say hope is not part of the equation.

Options activity has been concentrated on the Nov 22 calls today so far with already 6 times the open interest traded. Front month ATM implied volatility is in the mid 80s which is unreal for a name like MSFT. However, it may not be "too high". 30 day historical vol is up around the same mid 80 level, so in my mind whenever you get HV at or above the IV then volatility is a buy until proven otherwise. So in other words I would stay away from vol selling here. Until I looked at the volatility chart below I had no idea MSFT spiked up so high in vol during the past month. As the chart shows MSFT stayed in the 30s IV for a longgg time. This has truly been an amazing time to be a trader in the markets. Its oversold as heck but in this market, oversold means nothing. While we could see a bounce in the name tomorrow I just dont see any sort of strategy that rewards you for the risk you take. If you wanna gamble then maybe a 22/24 call spread would suit you.

So overall it should be interesting to see what MSFT says about demand in this environment but dont be a hero and buy into earnings, I never met a 52 week low that I liked. But Jerry Yang on the other hand? Well he owns one in YHOO, lol.

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