As I alluded to yesterday I decided I was getting tired of my position on MSFT with just being long 200 shares and thought I should add some options to bring in some more cash for me. It’s been somewhat of a stick in the mud recently and that’s not quite what I’m aiming for, even with their raised dividend.
While MSFT was trading at $24.51 this morning I sold two MSFT November 25 covered calls at $0.74 and two MSFT November 23 naked puts at $0.51 and received $247.95 after commissions. November options expiration is on November 19th which leaves me time to get the whopping $0.16 dividend that goes ex-dividend on November 16th. Although $32 in dividends isn’t much, getting an extra 2.5% annualized on my position is nothing to be upset about. If MSFT climbs above $25 before expiration I’ll assume my shares will be called away early for someone else to get the dividend, but that’ll open up a few extra days for me to open a new position where I might be able to make up the difference in time value. If MSFT is less than $0.74 in the money by then I might buy my covered calls back and then write them over again for another month or two out.
I don’t really see MSFT heading back to new highs in the near term or I wouldn’t have sold this covered call. I don’t see it heading much lower either with such strong dividend support too. That leaves it likely to stay in this trading range between roughly $23.50 and $25.50. The past week’s trading range has been much more limited than that with $24.30 and $25.00 being the edges of its range. A move outside of that might not be as much as a typical set-up to sell below it or buy on a breakout. It could be more of the reverse. Anything above $25 might be wise to sell and below $24.30 might be good to buy. I kept my put strike at the bottom of this range to help my chances of not being assigned the shares unless it’s at a steep discount to today’s trading price. It’ll take more than an 8% dip on MSFT for me to take a loss on this leg of the trade. If my shares are called away at $25 I’ll take an $800+ loss on the series of trades.
This trade moved me back to having a little potential margin if all of my naked puts are assigned and none of my covered calls are. I don’t see everything going south on me before November expiration, but by keeping my strikes farther out of the money I help my odds, especially since I plan to sell some new naked puts before then. With this trade all of my long positions are now covered with calls. If the market keeps rising I’ll free up some cash in a few weeks and will be ready to start some new positions.