This Microsoft Trade Generates a 25.7% Annualized Yield in Just 36 Days

Microsoft (MSFT) continues to attract serious attention from large investors, and right now, the options market is offering an attractive way to generate income while positioning for a potential entry into one of the highest-quality companies in the market.

In short, by selling a select short-term cash-secured put just below the current stock price, we can collect a substantial premium up front while giving ourselves a chance to buy MSFT at a lower effective cost basis if assigned.

Here’s the setup.

The Trade Setup

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The Numbers

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By selling this put, we collect $1,000 immediately.

If MSFT stays above $395 through expiration, we keep the full premium. If the stock closes below $395, we could be assigned 100 shares at an effective cost basis of roughly $385 per share.

That means this trade offers a compelling combination of immediate income, modest downside protection, and the opportunity to potentially own Microsoft at a price below where the stock is trading today.

Why This Strike Makes Sense

The April 17, 2026 $395 put stands out because it offers enough premium to push the annualized yield well past 20%, while still sitting below the current market price and near a recent support area.

At a $10.00 premium, this trade generates a 2.5% return in just 36 days. Annualized, that works out to a 25.7% yield.

As an income-focused trader, that is the kind of setup I want to see: a strong premium, a short holding period, and a strike price that still gives a bit of breathing room if the stock pulls back.

Institutions Are Piling Into Microsoft

While the options premium is what makes this trade attractive, it also helps that large institutional investors have been aggressively accumulating Microsoft shares in recent weeks.

Recent 13F filings show a wave of institutional buying that dwarfs the selling activity.

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The standout trade here is the $29.1 billion purchase by Auto-Owners Insurance. That single transaction alone represents enormous institutional conviction.

Combined with Corient Private Wealth’s $6 billion position increase, the total institutional buying across recent filings exceeds $35 billion in fresh capital flowing into MSFT.

Even after accounting for several funds trimming positions, the overall picture remains overwhelmingly positive.

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In other words, while a few funds have trimmed positions, the big money is still moving decisively into Microsoft shares.

That institutional demand provides another layer of support for the trade setup. When large investors are allocating tens of billions of dollars into a company at current levels, it reinforces the idea that the stock remains a high-conviction holding among professional investors.

Fundamentally, MSFT Still Looks Like a Stock Worth Owning

The options setup is the main story here, but it helps that the underlying business is one of the best companies on the planet.

That point was reinforced recently by Dave Van Knapp, who featured Microsoft as one of his “6 Best Bets Among Highest-Quality Stocks” (available to Dividends & Income Select subscribers), after screening for companies with elite quality scores, acceptable or strong dividend power, and fair or better valuations.

Dave also just added more Microsoft shares to his own Dividend Growth Portfolio, noting that while MSFT is no longer bought primarily for its yield, it remains an attractive holding because of the company’s wide moat, durable cloud ecosystem, and what he described as a valuation that appears fair if not slightly undervalued.

That’s worth keeping in mind here. If this were some low-quality, highly speculative name, collecting a rich premium would be a very different proposition. But with Microsoft, there is a credible case that if the stock does pull back and shares are assigned, we may be ending up with a high-quality business that serious long-term dividend-growth investors still want to own right now.

Wall Street Still Sees Major Upside

Another factor supporting the trade is that Wall Street analysts remain overwhelmingly bullish on Microsoft — even after cutting their price targets earlier this year.

In fact, nearly every major firm lowered its price target during the January-February market pullback. But importantly, the vast majority of analysts kept their “Buy” ratings.

In other words, analysts weren’t abandoning the stock; they were simply adjusting their expectations after the recent volatility.

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Despite the target cuts, the overall consensus remains strongly bullish.

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Even the most bearish analyst target currently sits around $392, which is only slightly below the strike price used in this trade. And that’s actually above our effective purchase price if assigned (more on that in a moment).

Meanwhile, the average price target of $603 implies nearly 49% upside from current levels.

That context matters. If analysts are even remotely correct about the long-term outlook for Microsoft, the most likely outcome is that the stock stays comfortably above the $395 strike — allowing the option premium to expire worthless.

Recent Price Action Is Helping Keep Premiums Rich

MSFT has been volatile enough in recent sessions to keep implied volatility elevated.

This recent chop in the stock is exactly the kind of environment that can keep option premiums elevated. And that’s good news for put sellers.

The $395 strike sits just far enough below the current share price to offer some protection, but not so far away that the premium dries up. That balance is what makes this strike especially attractive.

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Our Entry Price Looks Attractive If Assigned

If assigned, our effective purchase price would be about $385 per share, after subtracting the $10.00 premium from the $395 strike.

That’s notable because MSFT’s recent low on February 24 was $381.74.

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In other words, if shares are put to us, we’d be buying Microsoft just above a level that has already been tested by the market.

And if that happens, the trade doesn’t suddenly become a bad outcome. Instead, we’d own shares of a world-class business at a lower basis, with the ability to potentially collect dividends and sell covered calls for additional income.

The Two Scenarios

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That’s what makes this such an appealing setup. If the stock holds up, we generate a strong short-term return. If it drops and we’re assigned, we’re stepping into Microsoft at a price that looks much more attractive than today’s market price.

The Takeaway

My recommendation is simple: Sell 1 April 17, 2026 $395 PUT at $10.00 or better.

This trade checks a lot of boxes:

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The $395 strike looks like the sweet spot. The premium is rich enough to comfortably clear a 20% annualized yield, the downside cushion is respectable, and the effective entry point is close to a level the market has already tested.

Between heavy institutional accumulation, strong analyst sentiment, and Microsoft’s reputation as one of the highest-quality companies in the market, the $395 strike looks like a level where many investors would be comfortable owning shares.

For income-focused traders, this is exactly the type of setup worth paying attention to.

Good trading!
Greg Patrick

P.S. I’m seriously considering this MSFT trade in my own 401(k). If I pull the trigger, I’ll send the details to Dividends & Income Select subscribers, including the exact contract and premium collected.