The latest downturn of Microsoft Stock caught a lot of investors holding in the money naked puts as the stock tumbled back toward the $31 valuation. I have received a number of emails asking me how to approach such a downturn for in the money options caught when a stock tumbles. Microsoft Stock is a good example to use for this study. Perhaps the most concise question posed to me was on my Yahoo forum (free for anyone to join – shameless plug for my forum). On the forum, a member wrote wondering about being caught in the recent downturn of Microsoft Stock. He is holding 6 naked puts on Microsoft Stock at the $33 put strike for November 2013 expiry. He writes:
I’m holding 6 MSFT Stock Nov $33 naked puts. Currently Microsoft stock is down to $31.40. I could BTC (Buy to close) all and take a loss (on the trade). I could BTC half and then wait and see (what happens to the stock). Or I could roll out and down to Apr or Jan ’15 (which would result in a profit).
Microsoft Stock Options Rescue Strategy
There are many rescue type strategies that could be used for this Microsoft Stock position. It really depends on your outlook and what you want with Microsoft stock.
6 puts at $33.00 is $19800.00 tied up. But the November options are a long way off which allows plenty of time to consider strategies and to see if the stock bounces back, especially after the big sell-off this morning. Still though there are some things you could consider or certainly contemplate including simply waiting to see if the stock holds support at $31 and can then rebound back to $33. I thought I would present another way to consider rescuing in the money naked puts on a stock like Microsoft Stock. This methodology can be applied to any stock.
Microsoft Stock Internal Links
Microsoft Stock External Links
Microsoft Stock Investor Relations
Microsoft Stock Financial Statements