Mike Khouw is selling a Microsoft short strangle expiring August 21, collecting $7.30 a share for a 1.6% standstill yield over 21 days that annualizes to roughly 28%. The trade comes after the stock added $450 billion in market capitalization in a single session following quarterly results, a single-day gain that ranks among the largest on record for any U.S. company.
The structure and the strikes
The $412.50 put and $485 call sit at what Khouw identifies as immediate structural support and resistance. The put strike offers a net break-even of $405.20 after the $7.30 credit, a level below the pre-earnings price. The call strike sits about 8.5% above the current spot, a move that would match the magnitude of the late-January selloff that capped the stock near $485. The premium splits $3.80 on the call leg and $3.50 on the put leg.
The assignment logic
If assigned on the put, the trader acquires shares at an effective $405.20, a discount to both the post-earnings print and the pre-earnings level. If assigned on the call, the trader initiates a short position at an effective $492.30, capturing a material premium to the current range. Khouw frames both outcomes as acceptable for a name with a pristine balance sheet and mid-teens revenue growth.
The valuation backdrop
At 22.6 times forward earnings, Microsoft sits at the midpoint of its 20-year valuation range. That multiple, Khouw argues, acts as a fundamental floor for a mega-cap compounder with dominant enterprise cloud positioning. The current valuation, in his view, does not justify either a sustained breakdown or a compelling breakout, making the stock an ideal candidate for defined-duration short volatility strategies.
The risk that remains
The short call leg carries theoretically unlimited loss potential unless the trade is paired with an existing long position. Khouw acknowledges the risk but dismisses the probability of Microsoft doubling before expiration as quite low. The strategy relies on accelerated implied-volatility crush and steepening time decay into the 21-day window, a bet that the post-earnings excitement settles into a range, not a rerating.