STOCK OF THE DAY
MICROSOFT CORPORATION (MSFT)
MSFT is trading today at $28.50 a share. The company is one of the most successful corporations on Wall Street. MSFT has almost $40 billion in cash while the operation generates almost One Billion Dollars net a month. During this year, MSFT unveiled their new operating system (WINDOW 7) and are scheduled to release their business upgrade of OFFICE and WORKS. The future is very promising and the stock is poised to go significantly higher.
Here are possibilities of how to trade MSFT.
Buy the stock outright and wait for the stock to appreciate. The target price is $33 a share within six months.
Buy the stock at $28.50 today and to sell covered calls against it. The calls should be for July 2010.
As example, buy 1,000 shares at today price and the cost will be $28,500. By selling covered calls for
July 2010 with a strike price of $30, a $1,000 premium is earned. The net cost of the stock will be only
$27,500 and the owner has to hold the stock till option expiration (July 1, 2010). If MSFT will be over
$30
a share, the owner will lose the stock and will pocket a $2,500 profit-a gain of almost 10% for 5 months.
Sell April 2010 puts with a strike price of $28 against MSFT for $650. If MSFT dips below $28 a share within two months, the stock will be given to the owner at $28 a share. For example, the owner will receive $650 for the obligation to buy 1,000 shares at $28 each. The net cost for the owner will be only $27,350 for 1,000 shares of MSFT. That is considerably lower than today trading price. However if the stock during the next two months will stay above $28 a share, the owner will pocket the premium of $650 without ever buying the stock.