With the Dow slipping 110 points two hours into the trading session, one bright spot so far has been Microsoft (MSFT, $27.43, up $0.41). The stock is having a great week after touching a low of $25.11 Monday. There’s no real news concerning Microsoft. The fact that Carl Icahn has joined Yahoo’s (YHOO, $19.83, down $0.17) board is what’s moving Microsoft.

We all know Microsoft is the only straw stirring Yahoo’s drink right now and the recent blunders by Yahoo only confirm it. Yahoo is such a mess, I’m really surprised the stock’s not at $15 right now. It had already been pre-announced that Icahn would join the board on August 1 but when Yahoo announced there was an “error” in calculating the reporting votes from the shareholders, it just doesn’t look good. It fact it’s embarrassing.

Reporting votes are votes that show the approval or disapproval for members of the board. Yahoo’s Jerry Chang disapproval more than doubled what was previously reported, rising from 15% votes withheld to 34%. Chairman Roy Bostock saw his shares withheld rise from 21% to 40%.

Microsoft has always been strong when it touches $25 meaning it will hold this level and trade higher from there. This has been proven by the charts for the last few years. Do yourself a favor and pull up the two-year chart on Microsoft. The stock trades from $25 to $30 sometimes $33-$34 and then heads back lower.

I have some friends that don’t really trade options but took this advice and they buy a few hundred shares of Microsoft when it touches $24-$25 and they simply wait until it goes back to $30 or higher. If you buy at $24 and sell at $30, it’s a 25% gain pure and simple. Even through the turmoil that can come with the market, this trade has been golden. Sometimes when the stock gets to the $25-$26 level you can buy an option on the next month out and play Microsoft that way.

This method is a little riskier because of the different factors that affect the way the options will react. However, the option traders who bought the September 28 calls (MSQIT, $0.89, up $0.26) on Monday are up another 41% this morning. Something to think about in the future when you see Microsoft at $25 again.

Rick Rouse
Rick@OptionsMentoring.com