How Microsoft can help this trader make five times his money

Microsoft is set to surge after it reports earnings, predicts one trader who could make more than five times his money off a Microsoft bet.

Microsoft has surged more than 19 percent since its Brexit low in June. And though the stock has traded in a range for most of the summer, Andrew Keene of AlphaShark sees good signs in the charts for the tech giant, especially with earnings as a "catalyst" for Microsoft.

"It has rallied five of the last eight quarters on earnings," Keene said Tuesday on CNBC's "Trading Nation." "Combine that with the chart, and I think Microsoft is going higher."

On a daily chart of Microsoft, Keene says that the stock has consolidated since jumping off of the company's last earnings beat in July. While Microsoft has been trading in a range of $56 to $59, the stock has generally managed to stay above its 50-day moving average, which indicates to Keene that this smoothing mechanism is serving as support.

Meanwhile, Microsoft's weekly chart shows what Keene terms a "bull channel," and based on that trend, Keene believes that Microsoft could be headed to $62.50. In other words, Keene sees Microsoft climbing more than 8 percent in the short term, especially if the company's past earnings trends repeat.


To take advantage of this expected move, Keene is buying the November 60-strike calls and selling the November 62.50-strike calls for a total cost of $0.45 per share, or $45 per options spread. If Microsoft closes at or above $62.50 at the trade's expiration on November 18, this "call spread" will be worth $250, meaning that Keene will have quintupled his money.

"We have that measured move target to $62.50, so I think this is a great reward-to-risk set-up in Microsoft playing into earnings," said Keene.

Microsoft is currently up 4 percent year to date and closed Tuesday trading at $57.66. The tech giant is expected to report earnings on Thursday after the closing bell.

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