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The Middle East Conflict: A Catalyst for a Larger War?


No one can accurately predict whether the Middle East conflict will spark a much larger war that sends stocks sharply lower. That makes financial markets even more difficult to forecast.

Focusing on Long-Term Trends and Seasonal Factors

Yet all investors recognize this fact: Stocks rise over time, and certain seasonal factors tend to occur each year. By focusing on these facts, rather than trying to make short-term predictions, investors can create favorable conditions for themselves when none seem to exist.

The Influence of Year-End Bonuses

In November, trading flows often turn cautious as institutional investors focus on their year-end bonuses, which constitute the bulk of their compensation. This makes them less likely to embrace risks because they don’t want to jeopardize that.

A New Year Brings Optimism

By January, however, many of those same investors, as well as many nonprofessionals, become more optimistic. They often return to the markets from the winter holidays far more eager to buy stocks than to sell them. The reason is elemental: It’s a new year, and most investors, like most people, are optimistic by nature.

The Influence of Investment Marketing

January also happens to be one of the biggest months in the investment marketing calendar. Strategists heavily promote their 2024 market outlooks, which invariably include stock recommendations. Everyone will make reasoned, optimistic predictions in published commentary and at in-person events. The pushback against the recommendations is minimal, if at all, because the new year is beginning and there is a sense that anything is possible.

Embracing Companies with Strong Fundamentals

If many investors are sitting in cash and not buying securities, the Wall Street bull chorus might be unusually loud this January. The Street, after all, doesn’t really make any money from investors holding cash.

Anyone who feels compelled to invest in stocks should focus on companies with powerful fundamentals. Consider Microsoft (ticker: MSFT). The market-leading stock offers exposure to two important themes: cloud computing and artificial intelligence, which are revolutionizing how people work and live.

Microsoft: An Unstoppable Stock Momentum

Microsoft has proven to be one of the standout performers in the S&P 500 this year, outpacing the market’s growth. While concerns about overvalued technology stocks persist, Microsoft’s strong strategic position makes it unlikely that valuation concerns will significantly harm its stock momentum.

To capitalize on current apprehensions about a potential short-term pullback in Microsoft’s stock, as well as the optimistic outlook for January, investors can consider a hopscotch options strategy.

The Hopscotch Options Strategy

With Microsoft’s stock currently trading at $338.11, aggressive investors can sell the November $320 put option for approximately $2.12. By entering into a cash-secured put sale, investors position themselves to buy the stock effectively at $317.88.

It’s important to note the risk associated with this strategy: if the stock plunges below the strike price, investors will be obligated to purchase the stock at the $320 strike price or adjust their trade accordingly. Therefore, only investors who are willing to hold the stock for three to five years should consider this move.

From Bearish Fears to Bullish Greed

Anticipating a shift from bearish fears to bullish greed, aggressive investors can also sell Microsoft’s January $325 put for approximately $9.50 and purchase the January $350 call option for about $11.10.

This risk-reversal strategy involves selling a put with a lower strike price and buying a call with a higher strike price, both expiring in January. It positions investors to potentially acquire the stock at a lower price and benefit from any future rallies. Notably, Microsoft’s stock has fluctuated between $213.43 and $366.78 over the past 52 weeks.

These strategies aim to offer investors defined risks and potential rewards during uncertain times. Ultimately, time and the power of smart technology have a way of healing even the deepest wounds.

Let the stock momentum of Microsoft carry your investments to new heights.

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