Tomorrow’s Trade for Tuesday June 28 was Kellog Stock (K). The plan was to sell the July 15 expiry $75 put strike which I received $1.00 for on 4 contracts. I also sold 5 of the $72.50 put strike for July 15 expiry for 35 cents. I plan to try to sell another 5 but for more than 40 cents.
Tomorrow’s Trade – Microsoft Stock (MSFT)
Microsoft Stock has been in a downtrend since late April following its last quarterly earnings. Earnings weren’t overly negative but they did disappoint and investors have been pushing the stock lower for a couple of months. On Monday the stock reached $48.04, the lowest level this year.
I like the stock at this level and I have had a number of naked puts at $46 expire recently. I have additional ones that will expire this Friday that I have yet to close and probably won’t.
Microsoft Stock in 2016
Naked Puts
Selling pressure is keeping put premiums elevated for the stock. I plan to sell the $45.50 put strike for July 22 expiry. It was trading at 50 cents on Tuesday.
I have no rescue plan but instead plan to roll it out at $45 and keep rolling it out in time, should the stock fall to $45.00. I don’t think it will happen unless something stronger than Brexit hits the markets.
Credit Put Spread
For credit put spread I would sell the July 22 expiry, $45.00 put strike for 40 cents and buy the $40 put strike and offer 8 cents. This would set up a 32 cent profit against $5.00 of capital for a return of 6.4%.
Covered Calls
For covered calls buying the stock for $49.44 which was Tuesday’s close and selling the July 22 expiry $47 call strike for $3.15 would return 71 cents for a gain of 1.4%.
Naked Calls / Credit Call Spreads
For naked calls, selling the July 22 expiry $53 call strike could pick up 40 cents. Buying the $56.00 for possibly 6 cents would setup a credit call spread with a return of 34 cents and a spread of $3.00. This is a nice tight spread and a return of 11.3%.
Stock Trade
I would not be buying stock at this time.
Summary
I plan to do the naked puts, but the credit put spread looks intriguing. Picking up 11% is a tight spread offers a lot of protection. At $53.00 the stock would be back at levels it was in at the end of May. Those levels were short-lived. The stock could recover to above $53 but in the present investing climate, it seems somewhat unlikely this will happen.
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Tomorrow’s Trade is not a recommendation or financial advice. It is an outline of a potential trade to show what is possible for investors to achieve through studying stocks and their actions. It is designed for those investors who want to learn how to set up trades and protect them once established.
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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. 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 and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.