It is another beautiful Monday morning and there has never been a better time to make money off stock options as the market heads out of the last selloff and a new lease of volatility returns to the market. I am starting this week from the tech sector as we explore the options of Microsoft Corporation (NASDAQ:MSFT).
I wrote about trading MSFT options some 20 days ago in a post in which I observed that you could profit from MSFT options irrespective of whether the stock breaks out or breaks down. In that post, I recommended buying the MSFT Apr 2015 45.000 call (MSFT150417C00045000) at an asking price of $2.20 while I recommended balancing the trade with the MSFT Apr 2015 43.000 put (MSFT150417P00043000) at an asking price of $2.46 or better.
20 Days Later
As at 10:18AM EDT today, the MSFT Apr 2015 45.000 call that I recommended at $2.20 was up 59.09% to $3.50. In contrast, the MSFT Apr 2015 43.000 put that I recommended that you buy at $2.46 or better was already down 48.37% to $1.27. From the foregoing, you will observe that the MSFT put options has eroded the profits from the call options and we will only be left with just enough to mark a breakeven after accounting for commissions.
However, we can still milk out some gains from the contract by selling to close the put contracts and using the proceeds to lock in more position with the call options. In addition, I recommend shifting your stop/limit order up, if you haven’t done so already. I will be moving my stop to $3.40 to lock in profits and I will raise the stop by $0.10 for every $0.20 gained in the following days.
What Do You Say to Another 20% on MSFT Options?
If you still have investing capital lying around or if you are new to the Microsoft party, you may want to consider this new trade as we trade MSFT covered calls.
By the way, in case you don’t know, Microsoft Corporation with its market capitalization of $389B is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers.
Shares of Microsoft are trading at $47.23 as at 10:44AM EDT; hence, you’ll need about $472.30 to execute this trade if you’ll trade with 10 shares of Microsoft Corporation. Interestingly, you can sell the Dec $47 calls for $1.14 per contract.
Hence, buying shares of Microsoft now and selling the $47 calls will net you an instant $11.40 or 2.42% take home on the invested capital. Now, let us assume that shares of Microsoft fall below $47 before the expiration of the contract. You’ll get to keep your shares of Microsoft, keep the premiums collected from the sale of the contract as well as Microsoft’s upcoming quarterly dividend.
The best part is that you still get to win even if shares of Microsoft trade above $47.23 per share and the option is called away. Since, you sold covered calls (as opposed to naked calls) you’ll only need to deliver the Microsoft shares that you have bought while keeping the options premium in a simple buy-sell-profit trade.
— Daily Option Alerts