Microsoft Love Shorting Out - of - the - Money MSFT Puts Yatırımcıları

Investors in Microsoft Love Shorting Out-of-the-Money MSFT Puts

Mark R. Hake, CFA

Sun, August 16, 2026 at 4:15 PM GMT+3 5 min read

• MSFT -0.30%

Microsoft Corp (MSFT) stock looks attractive to short-put MSFT investors. They can set a lower buy-in point and also collect income while waiting by shorting out-of-the-money put options. I wrote about this play in two recent Barchart articles and want to update investors.

MSFT closed just below $500 at $495.40 on Friday, Aug. 14. MSFT jumped significantly after its July 29 FY26 earnings release. I discussed in reasons why this happenned in two Barchart articles, on July 31 and Aug. 3.

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The short version is that Microsoft is generating strong free cash flow (FCF) and is likely to continue doing this despite heavy capex spending.

Moreover, since I wrote these articles, analysts have upped their revenue forecasts and MSFT price targets.

As a result, it makes even more sense to find ways to buy into MSFT stock. One way to do this is to sell short near-term out-of-the-money (OTM) put options.

Microsoft Could Still Generate Strong FCF

Analysts have been jacking up their revenue forecasts. For example, revenue for the year ending June 30, 2027 is now $391.17 billion and $468.37 billion by June 2028. These are 17.9% and 41.2% higher than the $331.8 billion in FY 26 revenue (ending June 30, 2026).

They are also higher than prior estimates (as seen in my July 31 Barchart article)s and imply that FCF could jump significantly.

For example, in Q4 the company generated operating cash flow (OCF) that was 61.6% of revenue. It also expects its ongoing capex to be $175 billion.

So, OCF could reach $241 billion (i.e., 61.6% x $391b) and after deducting $175 billion capex, FCF would be $69 billion. That's better than the $67 billion in FCF it made for the year ending June 30, 2026, according to Stock Analysis.

Moreover, Microsoft spent just $116 billion in capex last FY, compared to $175 billion projected this coming year.

In addition, assuming 10% higher capex in FY28, FCF could rise to close to $100 billion:

$468.37b revenue x 61.6% OCF margin = $288.5 billion OCF

$288.5 - $192.5 billion capex = $96 billion FCF

In other words, MSFT could be worth substantially more, as its FCF is set to grow 43% over the next two years (from $67 billion) despite much higher AI-related capex.

What MSFT Could Be Worth

Analysts now have an average price target of $567.20, despite the stock's recent rise. That's despite the recent stock price spike after the earnings release.

Moreover, using my two forecasts of $69 billion in FCF this FY and $96 billion next, or $82.5 billion FCF on average, MSFT could have a much higher fair market value (FMV).

For example, using a 2.0% FCF yield metric (i.e., the same as multiplying FCF by 50x):

$82.5b FCF x 50 = $4,125 billion FMV

That's 12% higher than its present market cap of $3.679 trillion, according to Yahoo! Finance. In other words, a FCF-based price target (PT) is:

1.12 x $495.40 price today = $554.85 PT

This is why analysts have been hiking their price targets. For example, AnaChart shows that the average of 30 analysts is $560.20. AnaChart shows that 11 analysts have updated their price targets since the July 29 earnings release. This can be seen in the table below.

It shows that the range of PTs is between $522 (Cantor Fitzgerald) to $700 (Wells Fargo). These are up from $502 to $650 prior to the earnings release.
The bottom line is that MSFT stock looks very cheap.

Short-Put MSFT Plays

One way to play it is to set a lower buy-in point by shorting OTM puts. I discussed this in my July 31 Barchart article, "Microsoft Jumps 15% on Strong Free Cash Flow - What's the Best MSFT Play Now?"

I suggested shorting the $425.00 put expiring on Sept. 4, as the premium was $8.05. That gave investors a 1.894% yield (i.e., $8.05/$425.00) for 36 days to expiry (DTE), when MSFT was trading at $451.10 (i.e., the put was 5.77% out-of-the-money or lower than the trading price).

As of Friday, that put premium had dropped to just 36 cents. So, most of the income has been made and there are still three weeks left. It makes sense to roll this over and do a new short-put play.

For example, the Sept. 18 expiry (34 DTE) put option chain shows that the $475.00 put strike price has a midpoint premium of $7.03. That strike price has a similar delta ratio (27%) as before and a new 1.48% short-put premium (i.e., $7.03/$475.00).

Moreover, even if MSFT drops to $475.00, the investor has a lower breakeven point of $467.97 ($475.00 - $7.03). Based on my PT of $554.85, the upside to the investor is 18.6% over the next year.

And using Wall Street analysts' price targets, it could be even higher.

The bottom line is that MSFT looks cheap here, despite its recent uptick, and shorting puts is one way to play it.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com