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About The Company

Market Cap  $209B
Revenue (FYR) $58.4B
EPS $1.62
Book Value 5.77
P/E Ratio 10.8x
Shares Outstanding 8.4B
Dividend $.55
Payout Ratio 23.1X
Debt to Capital 12.4%

Microsoft Corporation is engaged in developing, manufacturing, licensing and supporting a range of software products and services for different types of computing devices.

Its software products and services include operating systems for personal computers, servers and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solutions applications; computing applications; software development tools, and video games.

It operates in five segments: Windows & Windows Live Division (Windows Division), Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division. It also designs and sells hardware, including the Xbox 360 gaming and entertainment console and accessories, the Zune digital music and entertainment device and accessories, and Microsoft personal computer (PC) hardware products.

 

 

 
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Should you find my strategy and ongoing evaluation of this trade of value I hope you will consider a tip for the time I spend detailing out this trade. I have set up a Paypal account for those who would like to donate. Thank you in advance. Remember, nothing on my site is financial advice. They are just my ideas and opinions. Investing is risky and losses can be large. Trade at your own risk. Read the terms of use
 

 
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Nothing presented is financial advice, trading advice or recommendations. Everything presented is the author's ideas only. The author accepts no liability for its use including errors and omissions. You alone are solely responsible for your own investing and trading. There are considerable risks involved in implementing any investment strategies and losses can be large. Trade at your own risk.

 
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  MICROSOFT STOCK  - 2010
Microsoft Stock Symbol - MSFT 
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ONGOING EVALUATION & TRADE - Year 2
Goal: Income through selling put options
Objective: To not be assigned but to continue selling put options indefinitely. Selling put options at the money or near the money does not concern me. If assigned I will sell covered calls until I am exercised out of my shares. I will then return to selling puts.

 

This is the second year for my Microsoft trade. As of Jan 1 2010 I have made $4638.50. In my opinion Microsoft is a great company for selling put and call options. Option premiums remain fairly valued as there is enough volatility in the stock. There is also good option volume daily. It's dividend is secure and it has a moat of cash protecting the company. It is well run although the media seems to present otherwise. Microsoft continues to dominates the PC platform with 90% of all machines worldwide running some form of Windows Operating System. Microsoft Office is the dominate office productivity software. Bing continues to make inroads and Microsoft XBOX with Kinect is growing in popularity. Owning the company would be fine, but I am far more interested in generating income from Microsoft stock through consistent and regular selling of puts and calls. This year Microsoft has continued to purchase its own shares. Obviously someone in their company thinks Microsoft is undervalued. You can review previous years to see how the trade started and to see the consistency of the stock and of the trade itself.
MICROSOFT TRADES BY YEARS
VIEW MSFT-2011 TRADES
VIEW MSFT-2010 TRADES

VIEW MSFT-2009 TRADES
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YEAR 1: 2009
 Trade Commenced Jul 10 2009
Goal for 2010: 1% per month
all figures for 6 months
Strategy: Sell Put Options until assigned stock
 
2009 - starting capital 22,000.00
2009 - ending capital 53,200.00
2009 - capital earned 4638.50
2009 - return on all trades 17.92%
   
YEAR 2: 2010
Goal for 2010: 1% per month
Strategy: Sell Put Options Until Assigned
 
2010 - starting capital 53,200.00
2010 - ending capital 51,000.00
2010 - capital earned 4422.75
2010 - return on all trades 34.69%
 

 

 

YEAR - 2:  2010
TRADE COMMENCED July 10 2009
ONGOING STRATEGY - SELL PUT OPTIONS UNTIL ASSIGNED

 

    Running Total From 2009               $4638.50
Jan 7 10 30.22 STO 8 put options Feb 29 @ .60     17.00   23217.00 463.00 1.99 5101.50
Jan 25 10 29.33 STO 8 put options Feb 28 @ .65     17.00   22417.00 503.00 2.24 5604.50
Feb 4 10 27.90 BTC 10 puts Feb 30 @ 2.30     19.50     (2319.50) (7.73) 3285.00
Feb 4 10 27.84 STO 10 put options APR 30 @ 2.71
Comments: I am not interested in being assigned yet, so I have rolled forward for additional premium.
    19.50   30019.50 2690.50 8.96 5975.50
Feb 4 10 27.90 BTC 16 put options FEB 29 @ 1.38     27.00     (2235.00) (4.81) 3740.50
Feb 4 10 27.84 STO 14 put options APR 29 @ 2.01
Comments: I am not interested in being assigned yet, so I have rolled forward for additional premium.
    24.50   40624.50 2789.50 6.87 6530.00
Feb 19 10 28.77 Expiry: 8 put options Feb 28 Expired
Comments: This frees up $22,400 for more cash secured puts.
               
Apr 16 10 30.69 STO 14 put options May 30 @ .68
Comments: I have sold 14 put options so far and I will hold off on the remaining 10 contracts, to see if the stock pulls back
    24.50   42024.50 927.50 2.21 7457.50
Apr 16 10 30.67 Expiry: 10 put options Apr 30 and 14 put options Apr 29 expired                
Apr 19 10 30.65 STO 10 put options MAY 30 @ .58     19.50   30019.50 560.50 1.87 8018.00
MAY 10 10 29.44 BTC 24 put options MAY 30 @ 1.18     37.00     (2869.00) (3.98) 5149.00
MAY 10 10 28.80 STO 10 put options JUN 29 @ 1.19
Comments: With the big rally today I closed all May 30 puts on the jump in the morning and then sold 10 Jun 29 contracts in the afternoon. Meanwhile should this stock pull back in the next couple of days I will add another 10 puts at a lower strike.
    19.50   29019.50 1170.50 4.03 6319.50
May 12 10 28.95 STO 5 put options JUN 27 @ .30     13.25   13513.25 136.75 1.01 6456.25
May 21 10 26.44 STO 5 put options JUN 25 @ .62
Comments: This stock was above 30 just a few weeks earlier. If I liked it at 30.00, I have to love it at 25.00. It has fallen 13% in 11 days! If it gets to 25 I may accept assignment and sell calls. It all depends on the premiums at that time.
    13.25   12513.25 296.75 2.37 6753.00
Jun 2 10 26.28 BTC 20 Calls 17JUL10 26 @ 1.20     32.00     (2432.00) (4.67) 4321.00
Jun 3 10 26.75 STO 20 CALLS 17JUL10 26 @ 1.68     32.00   52,032.00 3328.00 6.40 7649.00
Jun 7 10 25.69 BTC 10 put options JUN 29 @ 3.35     19.50     (3369.50) (11.61) 4279.50
Jun 7 10 25.62 STO 9 put options JUL 29 @ 3.55
COMMENTS: I closed 10 put options JUN29 contracts and sold 9 put options JUL 29 contracts for a small loss in order to reduce
    18.25   26118.25 3176.75 12.16 7456.25
Jun 7 10 25.58 BTC 5 put options JUN 27 @ 1.50     13.25     (763.25) (5.65) 6693.00
Jun 7 10 25.58 STO 4 put options JUN 27 @ 1.94     12.00   10812.00 764.00 7.07 7457.00
Jun 8 10 24.76 STO 5 put options JUN 23 @ .19     13.25   11513.25 81.75 0.71 7538.75
Jun 18 10 26.44 Expiry: 5 put options JUN 25 expired/ 5 put options JUN 23 expired                
Jun 18 10 26.44 Expiry: BTC 4 put options JUN 27 @ .62     12.00     (260.00) (2.40) 7278.75
Jun 18 10 26.44 Expiry: STO 5 put options JUL 26 @ .59
Comments: With the JUN 27 in the money, I bought to close and sold 1 additional put for the JUL 26 to roll down. This is not a recommended strategy for any investor who does not want to own stock in the company they have sold the naked put on. For me, I am quite pleased to hold stock at the 26 level. However I have in the past, done the roll down through selling additional puts as the stock fell. But it is important for any investor to realize they are exposing themselves to more capital at risk by continuing to sell more put options as the stock falls. Again remember rule #1 - I sell put options only on stocks I would own at the strike prices I sell at.
    13.25   13013.25 281.75 2.17 7560.50
Jul 16 10 24.92 Expiry: BTC 9 put options JUL 29 @ 4.05     18.25     (3663.25) (14.03) 3897.25
Jul 16 10 24.92 Expiry: STO 8 put options JAN 29 @ 4.88
Comments I have rolled out to Jan for a net credit and reduced the number of contracts from 9 to 8. So far then I have reduced my contracts from 10 to 8 which releases $5800.00 in capital. I will continue to do this as often as I can in order to reduce the number of contracts, each time releasing more capital to sell against naked calls further out of the money.
    17.00   23217.00 3887.00 16.74 7784.25
Jul 16 10 24.92 Expiry: BTC 5 put options JUL 26 @ 1.08     13.25     (553.25) (4.25) 7231.00
Jul 16 10 24.92 Expiry: STO 4 put options AUG 26 @ 1.64
COMMENTS: Another roll out and again I have rolled for a net credit. Many investors roll down rather than out. I prefer to roll out for a net credit rather than down for what is often a break even or a small net debit. By rolling out I have reduced my contracts to 4 from 5 releasing another $2600.00. This means that I have now freed up $8400.00 for writing more put options out of the money. For example today I could write the 3 August 23 put options for .40 or $120.00 before commission.
    12.00   10412.00 644.00 6.19 7875.00
Jul 21 10 25.02 STO 5 put options AUG 23 @ .30     13.25   11513.25 136.75 1.19 8011.75
JULY 26 2010: THE IMPORTANCE OF HAVING A PLAN:
Today's continuing move higher for Microsoft confirms the importance of having a plan and that has clear goals and objectives. My plan is to eventually own shares in this technology company. My goal is to use other people's money to pay for a substantial portion of those shares. To do this I will sell put options until I have raised enough capital to consider being assigned. The objective is to sell put options out of the money and continue to roll them following the gyrations of the stock. If my put options are caught IN THE MONEY, I do not panic. I will continue to roll them forward but always for a credit or if unavailable only a very small debit. I prefer to roll them at the same strike and reduce my exposure to IN THE MONEY put options by reducing the quantity of contracts on each subsequent roll. While most investing books and traders will advise to always roll down for a net credit or often a net debit, I find this to be very counter productive. My goal is to add to my capital through generating income in order to eventually own shares but hopefully with other people's capital. In order to accomplish this, I cannot keep taking net debits on every roll. The answer is to roll at the same strike further out and reduce the number of contracts on each subsequent roll, in order to free up capital that is being used to secure the put that is now in the money. That freed up capital can then be used to sell additional put options, further out of the money and continue to add additional capital to my overall plan.
It is important to remember that stocks move around a great deal. Just because my put options are suddenly in the money does not mean they will always be in the money. Continuing to roll the put options will often mean that the stock will recover and place the remaining put contracts back out of the money.

Today (July 26 2010) is a good example. At the time of writing this, Microsoft has recovered to 26.06 and now my remaining Aug 26 put options are working their way out of the money and watching the option premium decrease as we near August expiration. Below in the spreadsheet are some samples of how the puts are presently trading. I could buy to close my 4 August puts now at .65, thereby netting .99 cents from the previous roll (see Jul 16 in the above action chart which shows STO 4 put options AUG 26 @ 1.64). The cost to close the 4 Aug 26 puts at .65 is - $260.00 I now have a variety of strategies I could employ:
1) I could roll out and down to Oct 25 for a net credit  -  if I do 4 contracts I would net credit $76.00 - If I do 3 contracts I would net debit ($8.00)
2) I could roll out to the same strike for Sep 26 and pick up another .32 cents X 4 contracts = $128.00 or 1.2% for 1 more month roll but I am still exposed to 4 contracts.
3) I could roll out to the same strike for Oct 26 and do just 3 contracts for a net credit of $112.00. This frees up another $2600 of capital that is being used to secure my put contract and I have effectively reduced my $26 strike put contracts from the originally sold 5 to 4 and now to 3. Another roll will see me reduce the put contracts to 2. At that stage it becomes very difficult to roll out to just 1 contract for a net credit.
4) I can wait longer and see if the stock climbs more and the naked put premium will evaporate further.
5) I could just close the Aug 26 puts for $260.00 and then restart my naked put strategy at a lower strike all together, knowing that I have made quite a profit by originally rolling for $1.64 from July to August.

That's the great thing about naked put options. There are so many "options" available it is often hard to decide. However by having a clear goal and objective on how to get there, it makes it easy to make the decision. In the end, probably NONE of the above decisions is wrong. So what would I do? Simple - go to the charts. Let's look below. Microsoft fell to below 23 just a few weeks ago and it had not been that low since July-August of 2009. The last little rally took the stock to just shy of 27.00. Drawing that line out I can see that $27.00 has been touched or been close a few times. I have a circle where I think the stock could head in the short run. Right around the $27.00 mark and there it will probably meet resistance. However that would put my Aug 26 put options out of the money. Looking at the 10-20-30 moving averages the 10 day is back up and has crossed the 20 and the 30. Today the stock is back above the 50 day EMA. I will wait to see if the stock can climb more and watch for the put premium to evaporate before making my roll.

This is a terrific example of the importance of having a plan with clear goals and objectives, which helps in not panicking when naked put options fall into the money.  Because of my plan, I know where I am heading with the stock and what I want from it. I know how I am going to get it and the weekly or even monthly movements are to be welcomed as it increases volatility and allows me to roll my put options for larger options. Those who sell put options strictly for income on stocks that they would never own are often asking for trouble. A large decline can end up placing naked put sellers in a tough spot - they either end up owning more shares than they wanted on stocks they know nothing about OR they buy to close their trades for large losses. Selling a naked put for .35 cents and buying it back for 1.00 may not seem like much when doing perhaps 2 or 3 contracts, but the losses are actually staggering. The above example of buying back for $1.00 is a loss of 185%! Once more and more of these occur they will result in a substantial decline in portfolio value. Having a plan with clear goals and objectives is paramount when selling put options.
 
Aug 20 10 24.23 Expiry 5 put options Aug 23 expired                
Aug 20 10 24.23 BTC 4 put options AUG 26 @ 1.72     12.00     (700.00) (6.72) 7311.75
Aug 20 10 24.23 STO 3 put options JAN 26 @ 2.87
Comments: This is the continuation of the roll from July. Now I am down to 3 put options and unless the stock recovers, I will be rolling these and reducing by 1 the number of put contracts.
    10.75   7810.75 850.25 10.89 8162.00
Aug 20 10 24.23 STO 4 put options SEP 23 @ .25     12.00   9212.00 88.00 0.96 8250.00
Sep 17 10 25.22 Expiry 4 put options SEP 23 expired                
Sep 24 10 24.70 STO 4 put options NOV 22 @ .28     12.00   8812.00 100.00 1.13 8350.00
Sep 24 2010: THE RALLY
Today saw a major rally on all the indexes, but it only moved Microsoft back toward the mid-point of the bollinger band. I want to continue to bring in more income but I would like to avoid assignment as I already have quite a few shares, in the money. Therefore I looked at the past year and the low point was June 30 2010 at 22.95 so I feel fairly comfortable selling puts for the 22 strike. I believe with the increase in dividend and the somewhat bullish outlook I have for stocks this fall that MSFT should perform well and stay above my strike.

Oct 27 10 25.81 STO 5 put options NOV 24 @ .22     13.25   12013.25 96.75 0.81 8446.75
Nov 5 10 26.87 BTC 4 put options NOV 22 @ .01     12.00     (16.00) (0.18) 8430.75
Nov 5 10 26.87 BTC 5 put options NOV 24 @ .04     13.25     (33.25) (0.28) 8397.50
Nov 5 10 26.87 STO 10 put options DEC 25 @ .30     19.50   25019.50 280.50 1.12 8678.00
Nov 5 10 - DOUBLE DIPPING!! - The continuation of the rally is presenting me with the opportunity to close my Nov 22 and 24 strike put options and sell the Dec 25 for another 1% gain without waiting for November options to expire. I believe the rally in Microsoft will move it higher into the year end.
Dec 9 10 27.06 STO 8 put options FEB 25 @ .50     17.00   20017.00 383.00 1.91 9061.00
Dec 9 10  Below is the past 3 months. With the recent news about Microsoft's Kinect for X-Box, its iphone challenger, Windows 7 release and cloud computing, Microsoft is regaining some height. However the last rise to $27.00 saw a bit of a stumble and finally it sold off to the low end of the Bollinger bank. It held around the 25.00 strike and now we are back challenging $27 again. Will it be dejavu again or can we move higher this time?

The strategy though has to be to continue to generate income as risk free as possible. The 25 strike looks very promising and the 26 is sort of mid stream. To understand better I have to go out a full year. Looking out I can see that Microsoft has actually had a pretty tough year. I know this because I am still holding put options at the $29 strike. Overall though when I look out for a year, the 26 strike really does look promising. The 25 obviously has lots of support and any move of the stock back to $25.00 should be considered an opportunity to buy stock for a bounce back up OR a chance to sell put options at the $26 strike to again take advantage of a bounce. So until I see the stock stay above the 27 strike and gather some support, I believe it is better to stay with the strategy of trying to remain as risk free as possible. After all, with all the great news about Microsoft, wouldn't it make more sense for it to be higher than 27.00? Perhaps if earnings from Christmas are stronger than expected, then the stock will create a new support level. Meanwhile it's time to review my current positions:

REVIEW:  STILL HOLDING 8 put options JAN $29 and 3 JAN $26. The chance of the Dec 25 put options being assigned is so low I see not point in closing them with just 1 week to go. BUT IF I DID NOT HAVE CASH AVAILABLE TO SUPPORT ME, I would definitely buy and close the Dec 25 puts before moving to my next position. I am now selling the FEB $25 strike for .50 cents. 2% for about 2 months still works out to 12% for the year AND keeps me at the support area of $25.00. You can see why looking at the charts is important. I am only going to sell 8 put options rather than 10 as this will free up 2 put options and I may end up with the Jan 26 puts expiring worthless. This will then free up 5 put contracts which helps with commission costs. For obvious reasons I would rather sell 5 put contracts than 1 to save on my commissions. The trick for 2011 will be to continue to reduce the 8 put options at the $29 strike and keep rolling with the stock. If the stock sells off back to $25.00, it may make a lot of sense to sell the $26 naked put for a larger premium and then wait for the stock to bounce back up as it has done throughout this year.

SO THE STRATEGY NOW:
Sell naked put contracts at 25.00 and try to stay there until there is proof the stock has support above 25.00
Reduce through rolling the number of put contracts at the $29 strike

If the stock sells back below 26.00 sell the 26 put strike in the hopes of a bounce.

 

Dec 17 10 27.90 Expiry: 10 put options Dec 25 expired                
   

2010 Year End

          $4422.50 34.69% $9061.00
Microsoft Corp  
Trades By Years
View MSFT-2011 Trades
View MSFT-2010 Trades
View MSFT-2009 Trades
Microsoft Articles

In The Money Covered Call
Trade Anatomy
Puts Better Than Gold
Ultimate Utility Stock
Put Ladder
Microsoft Stock Report
Using Moving Averages
 

 

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not use this site. The author of fullyinformed.com assumes no liability for topics and ideas discussed, errors and omissions, ads and their content and external links. Any corporate insignia used are registered trademarks of their respective company or corporation and are being used for identification purposes only. All material copyrighted by FullyInformed.com. Reproduction in whole or in part prohibited. Copyright 2008

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