Trade Continuation - Microsoft (MSFT) Covered Call

Today I continued a MSFT investment in a traditional IRA as follows:

 

11/01/2011  13:29:58 Bought 200 MSFT @ 26.029                                      -5,215.79

11/01/2011  13:31:11 Sold 2 MSFT Nov 4 2011 26.0 Call @ 0.36                        60.47

11/04/2011  14:52:03 Bought 2 MSFT Nov 04 2011 26.0 Call @ 0.25                 -61.52

11/04/2011  14:52:44 Sold 2 MSFT Dec 17 2011 26.0 Call @ 0.88                     164.45

12/08/2011  Dividend                                                                                     40.00

12/16/2011  BTC 2 MSFT Dec 17 2011 26 Calls @ .05                                       -10.03

12/16/2011  STO 2 MSFT Jan 21 2011 26 Calls @.67                                       112.47

This roll lowered our amount invested to $4899.53 or $24.50/share. We are successfully collecting monthly income in addition to the dividend. If we get called away we will make ~280.00 after commissions. This equates to a return of ~5.4% on our initial investment or 25.54% annual.

Trade Continuation: Microsoft (MSFT) Covered Call

This afternoon I continued my recent MSFT trade as follows:

11/01/2011  13:29:58 Bought 200 MSFT @ 26.029                                      -5,215.79

11/01/2011  13:31:11 Sold 2 MSFT Nov 4 2011 26.0 Call @ 0.36                        60.47

11/04/2011  14:52:03 Bought 2 MSFT Nov 04 2011 26.0 Call @ 0.25                 -61.52

11/04/2011  14:52:44 Sold 2 MSFT Dec 17 2011 26.0 Call @ 0.88                     164.45  

I really got my panties in a wad over this little trade. MSFT was ~26.23 at the time I rolled the position. None of my options were very exciting. I decided to set myself up to collect the .20 dividend and lower the amount I had in the position to $5052.39 ($25.26/share) by rolling the call. If and when I collect the dividend I will have $25.06/share invested.

Maybe this position will be the one where I reach my goal of collecting income until I have zero dollars invested out of pocket... :)

Note: We will be receiving the MSFT dividend.

What to do with my MSFT trade?

Here is my initial trade:

11/01/2011  13:29:58 Bought 200 MSFT @ 26.029                                      -5,215.79  

11/01/2011  13:31:11 Sold 2 MSFT Nov 04 2011 26.0 Call @ 0.36                      60.47

It's option expiration today on the weekly. MSFT is trading at ~26.22 as of this writing. If I roll out the 26 a week most of the gain will be eaten by commissions in and out. While weekly options are terrific it should be noted that to roll from one week to the next one must have a substantial number of contracts otherwise commissions may make rolling cost prohibitive.

Two weeks out we'll gain ~.30/share after commissions and if it stays in the money we'll probably get called away early on the 14th so someone else can collect the dividend. There is a .20/share dividend in it for me if I can hold the stock through the 14th.

43 days away at the 26 strike I can collect ~.46/share and probably still collect the dividend for a total of .66/share. It seems to me my options today are to get assigned and make my little bit of dough which is nice on an annualized basis or tie up capital for a month and a half and have more potential gain but less powder in the keg should the market tank.

Note: It looks like the market might break down. That is fine for me as my favorite scenario is that MSFT ends up slightly under 26 and these 2 calls expire worthless. On the other hand if I roll a week I get the great time decay over the weekend. I read a study that showed that ATM or OTM weekly option calls drop ~30% over the weekend due to time decay.

New Trade: Microsoft MSFT Covered Call

This afternoon with the DOW down over 300 points I entered into a Microsoft covered call investment. Microsoft has been raising their dividend for seven straight years. It just raised the dividend to .20/share (3.07% annual yield) and goes ex-dividend November 15. MSFT fulfills my qualification of a stock I would like to hold long term. Here is the transaction:

11/01/2011  13:29:58 Bought 100 MSFT @ 26.029                                      -5,215.79  

11/01/2011  13:31:11 Sold 2 MSFT Nov 04 2011 26.0 Call @ 0.36                      60.47

I may take the ~1% return in 3 days on this weekly option, however, another definite possibility depending on how the next couple of days plays out, is that I will roll the trade to the next week or Nov 19 with an eye toward capturing the dividend. Of course, there is also the possibility the call expires worthless. In any event, our cost basis is $25.77.