Friday, November 4, 2011

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.

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