Hello Fools, I'm considering getting into the MSFT Covered Call with a slightly modified 3rd leg. I'd appreciate any feedback on this idea good or bad.Buy Jan14 25 Call = $6.30Sell Jan14 25 Call = ($1.77)Sell Jan13 31 Call = (.97)If my math is correct this puts my net debit at $3.52 and a break even of $28.32Does anyone have any other idea's for an investor to get in on this recommendation?Thanks,-Jason
Something is wrong.... your first two positions are perfect offsets with different prices.
Oops, thanks for the catch. This is what I meant:Buy Jan14 25 Call = $6.30Sell Jan14 25 Put = ($1.77)Sell Jan13 31 Call = (.97)
So here's what I see. You are getting virtual shares of Microsoft for $29.53 and so long as its below $31 in January, you pocket a $.97 premium.I wouldn't touch this with a 10' pole because essentially you are assuming all the risk associated with the stock but you don't get the dividend which has been the biggest reward for shareholders over the past 10 years. You profit on this position so long as the stock finishes above $28.56, but your upside is capped.My feeling here is that Microsoft is at a pivotal point. If Windows 8 fails to gain traction, it's going to be a long road to recovery and I think everyone knows it and it's likely shareholders (and synthetic shareholders) will be punished. If Microsoft does well, shareholders will be rewarded, but you're left with a modest gain. If you think Windows 8 is going to be a hit, I sugget you just do a straight synthetic long and skip the covered call. You seem to be betting on status quo which I feel is unlikely at this point.
Thanks for the insight and opinion. My outlook on Microsoft is the status quo for the next 6 months or so. I've been looking for a matching options strategy to go along with this outlook that provides a modest payout if the stock stays in the 30-33 range. Thanks again for the detailed viewpoint.-Jason
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