Wednesday, February 26, 2020

Buy high and sell higher - my way of nibbling MSFT

Thursday, February 27, 2020

All investors have to use opportunities to build their portfolios.  Always keeping your emergency fund of one year's expenses in cash/money market equivalents is important.  But I nibble.

Today I am adding again.  In the pre-market MSFT traded in the low $160's.   I added a little. Nibbling and building the position for the future.  Skate to where the puck will be not where it is.

M* MoneyMadam

I lost all but 100 shares of Microsoft to call buyers.  My shares were assigned and assigned early.  I bought October 22, 2019 at $138.  December 2, 2019 I sold calls with a strike  price of $160, expiration date of 2/21 for a premium of $1.88.   MSFT was ex-dividend on 11/20.   The end result is I received the dividend of $.51 per share + the premium.  My shares were assigned on 2/18/20.

Actual result of this MSFT trade:

MSFT Call sold on 12/2/19 2/21/2020
Cost Basis:   10/22/2019 $138.00
Strike Price: $160.00
Call Premium:  $1.88
Dividend  Ex-Div 11/20/19 $0.510
Call Yield on Basis 1.36%
Call + Dividend Yield on Basis 1.73%
$ Gain if Assigned $24.39
Call Assigned on 2/18/2020 17.67%

Microsoft's stock price increased significantly and I looked like an idiot for picking such a low strike price.  Who knew?  The call buyer knew and bought these shares at $160 on the day that MSFT traded as high as $187.70.  We all benefited I got my over 17% gain and the call buyer, if they sold those shares immediately received a net gain of 15.95%.   A win win for all.

Buy high and sell higher

My next MSFT trade was to buy at $161 per share on 1/9/2020.  I bought higher than the strike of the previous call.  Getting nervous about the price and P/E ratio of MSFT, I didn't want to commit for so long.  As soon as I bought MSFT on 1/9, I sold a $170 call to expire on 3/20/20.  I will get the dividend on this trade.  I still own those shares.

Here is how that call looked when executed.

Call Expiration 
MSFT Call sold on 1/9/20 3/20/2020
Cost Basis:   1/9/2020 $161.00
Strike Price: $170.00
Call Premium:  $2.23
Dividend  Ex-Div 2/19/20 $0.510
Call Yield on Basis 1.39%
Call + Dividend Yield on Basis 1.70%
$ Gain if Assigned $11.74
Max Return if Assigned 7.29%

Today I bought even higher.   Microsoft soared to $190.70 on 2/11/20 but during this recent market adjustment, MSFT has reverted to around $170 per share.  The call buyer on the original call noted above, if they held the shares, is still in the money.  The call buyer for the second lot may or may not take my shares at $170 on or before 3/20.  We will just have to see.

Today I bought at $170.50 and sold a call that expires in 10 days on March 6, 2020.  I remain very nervous about the volatility but I have to make a living and I do that by selling calls on dividend stocks.

Here is the call I sold today:  Expiration 3/6 with a strike price of $177.50.  I received $1.75 per share in call premium.  This call is on for 10 days.

Price on Open Call Expiration 
MSFT $171.41 3/6/2020
Cost Basis:   2/26/2020 $170.50
Strike Price: $177.50
Call Premium:  $1.70
Dividend  Ex div after exp $0.000
Call Yield on Basis 1.00%
Call + Dividend Yield on Basis 1.00%
$ Gain if Assigned $8.70
Max Return  if Assigned 5.10%

I do like MSFT and you can see the fundamentals below.

MSFT Earnings Dividend
 Earnings > Dividend $5.80 $2.04
 Debt to Equity 0.72
 Dividend Yield 1.19%
 3 Yr. Rev. Growth 13.84%

It remains expensive but I believe what it sells will continue to be needed in spite of the Corona Virus.   If it goes down lower, I believe I will sell more calls and most likely eventually will have all my MSFT called away.  I rarely love a stock so much that I cannot stomach losing it.

Good luck in this volatile market.

M* MoneyMadam

Disclosure:  Long MSFT with calls

If you're considering a call use this calculator to determine your potential gain:

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