Microsoft’s shares are climbing due to several positive developments. The company is boosting its AI efforts with a new partnership with OpenAI, focusing on ChatGPT and Azure. Microsoft has also resolved some regulatory issues with the European Commission regarding Teams. They decided to offer Office 365 without Teams, which reduces antitrust pressure. Additionally, a Memorandum of Understanding (MoU) was signed with OpenAI, expecting both companies to have about 30% stakes as OpenAI moves to a for-profit model. These actions are boosting investor confidence. Shares rose by $11.06, or 2.21%, reaching $512.03. The stock price has gone past the 100-hour moving average of $503.49 and is currently testing the 200-hour moving average at $512.27. Today’s high of $512.45 is slightly above this important point. If the price stays above this moving average, it could gain more momentum, aiming for a target of $518.29. This level had stopped rallies on July 25 and 29 but was surpassed after strong earnings news. Microsoft hit a record high of $555.23 on earnings day before dropping 11.2% to $492.37 last Friday. Recent market behavior shows increased buying interest at $518.29, highlighting its significance. As Microsoft tests the critical 200-hour moving average at $512.27, this is an important moment. The good news about OpenAI and the settlement with the EU gives a strong push for a potential price increase. We should think about buying call options expiring in October 2025 with strike prices above the next resistance of $518.29. This positive outlook aligns with the broader market’s performance. The Nasdaq 100 has gained over 1.5% today, making a comeback from last week’s downturns. We also see a surge in bullish options activity, with call volume for the October $525 strike running at nearly three times its daily average. This suggests that big investors are betting on further gains soon. That said, we need to recognize that the recent 11.2% price swing has raised implied volatility to around 28%, which is at the higher end for the year. This means selling premium can be an appealing strategy. One option is to use a bull put spread with a short strike comfortably below the recent low of $492.37. This strategy can profit from both a rising stock price and decreasing volatility as the stock stabilizes. We recall a similar situation in late 2024 when a post-earnings drop was quickly reversed after positive news about the company’s AI division. A strong close above the 200-hour moving average would confirm that the same pattern may be happening again. However, if the price fails to hold this level, it could drop back to the 100-hour moving average around $503. Next week’s Federal Reserve interest rate decision adds more uncertainty that could affect the tech sector. If the Fed takes a hawkish stance, it may hinder this current rally, despite Microsoft’s solid fundamentals. Therefore, we should keep our initial position sizes small until we see a confirmed breakout and more clarity from the Fed.

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