I wrote puts on Microsoft Corporation (MSFT) on Monday.

music selection:  “The Sound Of Silence (cover)” — Disturbed

Previously, I had 52 strike written puts that expired safely out of the money.  I was able to improve safety while maintaining  a 12% yield by moving down to the 49 strike.  I sold MSFT160422P00049000 for 65 cents a contract.  The trade will be in force for 40 days and yields 12.10% annualized.  Versus the spot price of 53.07 at time of writing, the trade has 8.89% downside protection.

Microsoft is a very strong company with great cash flows.  It rewards shareholders with dividends and share buybacks and has a measure of safety in the form of 102 billion in cash and short term investments on the balance sheet.  Net of cash, its valuation is very attractive.

In other news, I have positions in AT&T and Cheneire energy expiring today.  All three legs should expire safely out of the money.  I’ll roll the positions forward on Monday.

Devour your prey raptors!

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Written Put Microsoft Corporation (MSFT)

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4 thoughts on “Written Put Microsoft Corporation (MSFT)

  • March 19, 2016 at 8:47 am
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    Hey Velociraptor,

    IT looks like I need to login to post in the discussion forum. Do I overlook something?

    AT

    Reply
    • March 19, 2016 at 1:52 pm
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      I was getting SPAM with guest posting enabled. The login is on the sidebar to the right.

      Reply
  • March 19, 2016 at 2:31 pm
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    Financial Velociraptor,

    Your story is excellent. I’m interested in your strategy on writing option premium. For example on MSFT your 49 put sold that expires on 4-22-16. First why did you go long? 2. did you choose 1STD or approximately a 16 Delta? 3. what is your exit strategy if MSFT goes down? 4. what is your profit target?

    Reply
    • March 19, 2016 at 7:15 pm
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      Karl,
      Thanks! 1) My strategy is to find companies that I’d be happy holding long term. That way if the price declines and I can no longer write options profitably, I’m not miserable for the decision. 2) I don’t get into the greeks or any statistical analysis. That goes back to point 1, I’m happy to own MSFT at the strike price and do not perceive being assigned as “risk”. 3) There is no exit strategy if MSFT goes down. It is a great company that is attractively priced at the 49 strike. It pays a dividend and buys back stock so the price will eventually recover enough to profitably write covered calls against the position. If it falls 25% or more, I’ll re-evaluate whether something fundamental to the business has changed such that it is no longer a good buy but usually I hold and wait. 4) I take what profit I can get in most cases, so long as I make at least 12% annualized (else find another opportunity, there is always something paying 12%). MSFT pays more than 12% if you go with a near the money strike but I am backing off to 12% right now for extra downside protection as I am suspicious of the current market until it the S&P 500 demonstrates it can close above 2131. Twelve percent is a dandy fine return that smokes the long term average of the broad indexes. I don’t recommend getting greedy. Chasing yield will get you burned.

      Also, my overall strategy includes a healthy allocation to fixed income. The markets can be flaky so regular interest payments bring a great deal of peace of mind. See closed end municipal bond funds such as IIM, IQI, NEA, and NIO; as well as preferred shares closed end fund JPS for some of my favorite fixed income ideas.

      Reply

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