Here’s another way to play the Microsoft trade for investors familiar with American style options (which can be exercised at any time before expiration date).
You can sell puts on Microsoft stock to generate income. Selling puts can be a lucrative way to invest, and interesting, too, because you make money by trying to NOT own the stock. And Microsoft is a good candidate to generate this kind of income by selling puts on their stock – over and over again.
At a current price of around $31.89 a share, you can sell the October 31 puts for about $80. And that can work out one of three ways.
1. If their price goes up from here to October, you keep the $80.
2. If it stays the same from here to October, you keep the $80.
3. And if it drops to $31 or below, you still keep the $80, but you will have to buy the shares at $31, a slight discount from today’s price.
So in this last scenario, you do actually wind up owning the shares. The good thing is that you bought the shares at a slight discount to today’s market price. And now that you own them, you can sell calls on the shares to generate even more premium income. Yet another benefit is that you will receive their 2.9% (and growing) dividends.
So if you want to put this trade on, call your broker and tell him you want to “sell, to open, the Microsoft (MSFT) October Puts for not less than $0.80.” Just remember that for every put option you sell, you are obligated to buy 100 shares if the price drops to $31 a share or below by October.
Action to take: Sell, to open, the MSFT October $31 puts (MSFT Oct 19 2013 31 Put) for about $.0.80.