Showing posts with label MSFT. Show all posts
Showing posts with label MSFT. Show all posts

Monday, March 23, 2020

Extraordinary call on MSFT I had to sell

These are strange times.  I had more than 20 calls on 20 stocks expire on Friday.  Today I searched each and every name where I am above my cost basis.  I was looking for extra call income.

During the past few weeks I added little bits of MSFT for a basis of $140.  On those shares I am barely even as MSFT is trading in the mid $134.   However, I found an extraordinary call that I sold today.

Price on Open Call Expiration 
MSFT $133.83 6/19/2020
Cost Basis:   March $140.00
Strike Price: $155.00
Call Premium:  $7.07
Dividend  5/20/2020 $0.510
Call Yield on Basis 5.05%
Call + Dividend Yield on Basis 5.41%
$ Gain if Assigned $22.58
Max Return  if Assigned 16.13%



If my shares are called away, I benefit to the tune of over 16%.  If MSFT stock price soars and I lose it before the dividend date, that is o.k. by me.  If it rumbles along at the current price level, I will probably not lose it and will capture the dividend.  I am fine being long MSFT but I am also fine having this lot called away when I get the unbelievable premium of $7.07 per share.

The premium on this call is equal to over 13 quarterly dividend payments.  As an income investor I have to do this.

Analyst moves MSFT

M* MoneyMadam
Disclosure;  Long MSFT with calls on part of the position.
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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:


Enter Cost Basis:
Enter Strike Price:
Enter Call Premium:
Enter Dividend if ex-div before Option Expiration:
Call Yield
GAIN
Total Return Percent if Assigned

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Monday, December 2, 2019

Covered Call Activity MSFT

A call I executed today.   MSFT is a quality stock with a low yield.  I use covered calls to make up the difference between what MSFT yields and what I need.
























M* MoneyMadam
Disclosure:  Long MSFT with covered calls
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Monday, August 26, 2019

MSFT calls and capital gains

This cat and mouse game is not about the Apple invention, the mouse, it is about Microsoft.  Tomorrow I am going to go after another MSFT call; here's why.

  • MSFT has growing revenues which are hard to find in the group of stocks in which I invest; stocks that pay a dividend.
  • Microsoft's P/E (price earnings ratio) of 30.5 reflects that growth.
  • MSFT's dividend yield is low not even beating the 2 year US Treasury.
  • Microsoft's ex-dividend date tends to fall one day before quarterly options expire

I like Microsoft but it is not one of the stocks I cannot afford to lose.  While I am basically an income investor, I do use growth in the portfolios I manage; Microsoft is evidence of that. But income is king and covered calls have provided a nice income.  

I will not add to MSFT tomorrow just to execute this trade.  I will use shares from my existing cost basis.  Below are the potential results of the a $150 strike, November 15, 2019 expiration.  























The above table illustrates your potential return if you bought at the close on Monday.  You can use my call calculator to change the basis and premium to determine your potential return when trading commences on Tuesday, August 27, 2019.

The next  table illustrates my potential return using the cost basis of the shares I will use to cover the call.   I may get to keep MSFT or  I could lose it.  If I lose it to the call buyer, I will have taken enormous profit.  And, should MSFT have a price correction that does not make it a poor fundamental play, I could add again and sell more calls on the new cost basis.





















The Cat and Mouse game.  I have been using this MSFT covered call strategy for the past 8 quarters and when the stock is at or above the strike price, the call buyer exercises the option to buy early.  This allows the buyer, who paid me the premium, to cash the dividend.   Therefore, a better measure of this call option would be to not include the dividend and see how it works out.






In the case of MSFT, the dividend is comforting but not consequential.  Capital gains and call premium income are good for ordinary income investors and sometimes you can find growth as well.

M*  MoneyMadam
Disclosure:  Long MSFT,  intending to sell calls

8/27/2019 Update to Post

Here is the actual trade executed this morning:  Sold $150 strike 11/15/2019 expiration for a premium of $1.60  




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Monday, August 12, 2019

A case for Selling Calls for the Income Investor

Call income seems to accompany dividends as the best income tools for August.  Bond interest is so low and quality dividend stocks are so expensive.  Therefore, I sell covered calls on existing positions hoping I do not lose too much opportunity by having my stocks called away.

August is a pretty typical month for call expirations.  History tells us 90 percent of calls expire without action and 10 percent are assigned.   In the table below, I have 18 calls with August expiration dates.

As of today, I have 4 in the money which means the current stock price is above the strike price and 14 out of the money where the current stock price is below the strike price of the call. See the table below.



Only one of these stocks does not pay a dividend and that is YELP.  When I realized YELP was not going to perform quickly, I sold a call very close to the current price and my basis and am hoping it is called away which means the call buyer not only paid me a premium for the option but will also pay me the strike price.  That makes me even on the stock and the call premium in my pocket.

Three other stocks have low dividend yields, MSFT, NVDA and SWKS.  I consider a yield low if it is below the 2 year U.S. Treasury yield so SWKS with a yield of 1.99% may not be considered a low yield stock for some.

I like MSFT but with such a low dividend, as an income investor, I am willing to lose part of my position to the call buyer.  I am underwater on NVDA and will hope the China situation improves at some point.  I will continue to sell calls that are close to my basis so that I can unload NVDA in a similar fashion to YELP.

FOUR IN THE MONEY CALLS

The four income money calls are:   MSFT $135, WDC (Western Digital Corp.) $52.50, CVS $57.50, and YELP $34.   Expiration dates are August 16, 2019 except where noted.  My reasons for risking losing these stocks to the call buyer are:

  • MSFT - yield is too low
  • WDC - yield is good but not growing, EPS are less then dividend paid out but growing
  • CVS - (August 23 expiration)stock price is weak, I added to my shares that are underwater, and sold calls against the low buys
  • YELP - no dividend and stock price is not performing as hoped 

The downside of selling covered calls is two fold. one is lost opportunity.  The call buyer was right to pay you the money for the option to buy, they execute the call and then the stock soars and you miss out on the growth.    If you always look back and are cannot afford to lose a favorite stock, don't sell calls against your beloved stock.

The second risk is your shares are on call, the stock price tanks, you would like to get rid of the stock but cannot unless you pay money to buy back the call.   This risk is untenable for an income investor.  We don't pay out, we deposit funds.  The moral is to pick the underlying stock carefully.

FOURTEEN CALLS OUT OF THE MONEY

The 14 out of the money calls are listed below.  Each stock pays a decent dividend and I am willing to keep them.  I am hoping for additional volatility that may allow additional call selling.  But I am not in such a hurry to lose these stocks so I pick strike prices that I think are harder for the stock to attain before the call expires.  Expiration dates are 8/16/2019 except where noted.

  • MSFT - $145 low yield but upside potential for this very well run company 52 week high $141.68
  • COP - $67.50 nice dividend increases of 7+% recently  
  • LVS - $62, $65, $67.50 High yield with enough volatility that strike prices well above my basis are available.
  • M - $23 High yield with an improving balance sheet and very low P/E (price earnings ratio)
  • WSO - $180 Nice yield, with good fundamentals, headline risk due to global exposure provides strike prices well above my basis
  • SWKS - $82.50, $85 Decent yield, good balance sheet, nice volatility, I have been able to sell calls two - three times per year
  • WMT- $115 Walmart does not raise the dividend much and the yield is mediocre, strike prices near the 52 week high of $115.42 pay enough premium to make WMT a hold.
  • WDC - $55 High yield and improving fundamentals
  • SWKS- $81 (August 23 expiration) Decent yield but enough volatility to enjoy call premiums more than once a year
  • RDS.A - $63.50 (August 23 expiration) Very Good Yield, calls available only about once a year and I sell calls on only part of my position always above my basis and hopefully pick a strike price high enough that I am not called away.
  • NVDA- $185 (August 30 expiration) my worst performing stock of the group.  Not enough dividend to care if it is called away.   
In my case 22.22% of the calls are likely to be exercised versus the historical average of 10% but we still have to see what happens the rest of August.  This post illustrates how conservative income investors can use call options to boost their income during a time when quality dividend stocks are expensive and quality bonds are outrageously expensive.

M* MoneyMadam



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Wednesday, May 29, 2019

Two calls in a down market while I nibble

One problem of selling calls on quality stocks is that when they are called away at your strike price, quite often their stock prices continues to go up and you lose that opportunity.

The other problem with selling calls on even quality stocks is that you are stuck with the stock until the expiration even if the stock price is sinking.

Our current market makes clear the second risk preempts the first.  Readers know I work my portfolio with calls.  Often times I am in and out of stocks once of two a year.  I am unafraid of each risk noted above because I try to pick quality stocks.   

I added a small amount of two quality stocks today and immediately sold calls on them.  One stock carries a low dividend yield but all other Dividend Machine fundamentals are in order.  The other stock carries a high dividend yield and has a little more debt than I like, but I believe it is a quality stock that will continue to pay their big yield.

I like to get a minimum of 10% total return; capital gain, call premium, and dividend; when I buy a few more shares and sell a call for no other reason than to reap income.  Here are my two trades today.

Microsoft, symbol MSFT

























Dividend fundamentals include earnings of $4.50 are greater than dividend of $1.84 and debt to equity ratio of .77.  Negative is low yield of  1.47%


IBM, symbol IBM


























Dividend fundamentals include earnings of $9.50 are greater than dividend of $6.48.  Debt to equity ratio is 3.03 and that is a negative but it is offset by a dividend yield of 5.01% with plenty of cash flow to pay it. 


Nibbling for income.   Disclosure:  Long MSFT and IBM with calls

M* MoneyMadam

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Tuesday, March 26, 2019

Income investor view of five stocks buying back shares

I am always interested to learn how stocks  use their cash. When I saw this article on stock buy backs, I decided to look at the stocks mentioned through the eye of an income investor.

  •  Stock buy backs reduce the number of shares for ordinary investors which could lead to stock price inflation
  • Income investors prefer dividend increases to stock buy backs
  • Stock buy backs can cause stock ownership to be concentrated among a small group of investors 
  • Solid dividend machine fundamentals remain the best metrics for successful income investing.

Stock buy backs strong in fourth quarter 2018.  The full Reuters report can be viewed here:  http://pdf.reuters.com/htmlnews/htmlnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20190325:nPn8NsQkTa

Issues:

The five issues with the highest total buybacks for Q4 2018 are:

  • Apple (AAPL) led in buybacks, spending $10.1 billion in Q4 2018, down from $19.4 billion spent for Q3 2018. Its Q4 2018 expenditure ranked 19th highest historically; for the year, Apple spent $74.2 billion on buybacks, up from 2017's $34.4 billion; over the five-year period the company spent $229.0 billion, and $260.4 billion over the 10-year period.
  • Oracle (ORCL): $10.0 billion for Q4 2018, down from $10.3 billion for Q3 2018; 2018 was $29.3 billion, up $4.0 billion in 2017.  
  • Wells Fargo (WFC): $7.3 billion for Q4 2018, slightly down from the $7.4 billion spent in Q3 2018; 2018 was $21.0 billion, up from $10.3 billion in 2017.
  • Microsoft (MSFT): $6.4 billion for Q4 2018, up from $3.7 billion for Q3 2018; 2018 was $16.3 billion, up from $8.4 billion in 2017.
  • Merck (MRK): $5.9 billion for Q4 2018, up from $1.0 billion for Q3 2018; 2018 was $9.1 billion, up from $4.0 billion in 2017.
Buy backs are an interesting aspect of the market.  Buy backs are touted as benefiting the stock owner.  With fewer shares in the open market, your shares should be worth more money.

As an income investor, I would prefer the company pay or increase my dividend.  Some companies use a lot of debt to buy back shares such as Home Depot, symbol HD. Is it worth it to leverage the balance sheet to run up the value of the stock?

Stock Buybacks and Stock Market Inflation


For ordinary investors, stock buy backs are more problematic on a macro scale.  When you have too much money chasing too few goods which in this case we are talking about stocks, the price of the goods goes up.

The income investor class is growing as baby boomers retire and look to live off the income their money makes instead of living off the income their jobs provide.  Lots of money chasing only a few investments that pay income makes for price inflation.

We have price inflation on dividend stocks and price inflation on fixed income such as municipal and corporate bonds.   We are faced with price inflation on every income option. 

In a healthy economy we want ordinary investors to be able to own stock in the companies that affect their lives.  We don't want ownership concentrated in just a few hands even if that is the teachers pension plan.

An income investors view of these five stocks


Let's look at these five stocks and see if despite fewer shares being available they are still good investment options.

We income investors start with how these five stocks compare on dividend machine fundamentals.  You can find my Dividend Machine criteria here:  http://www.themoneymadam.com/p/dividend-stock-criteria.html




As you can see, Oracle is a bit high on debt and low on yield but once they decided to share some money with their investors, the dividend growth is very good.  All stocks except Merck have a very safe payout ratio which means the dividend and the dividend growth rate is safe.


Of the five stocks noted above, only Oracle, has piled on debt recently.  Yet their debt to equity ratio is not even close to HD.    See the graph below.  The other stocks have very reasonable debt levels so balance sheet quality is not an issue with them.  They could pay us a dividend just as easily as buying back stock.  All stocks provided very good dividend growth over the past three years with Oracle being the best dividend growth stock of this group.

In this case, perhaps Oracle's debt increase funded dividend growth rather than stock price appreciation.  We will look at other metrics later in this post.

Oracle's increasing debt load.























Let's now look at how their stock prices have performed during the time they were paying out dividends and buying back stock.





Microsoft, MSFT, is the winner on price appreciation with Wells Fargo the laggard.  Eighty percent is a pretty good average for picking growth stocks no matter what the reason for the price increase.


Let's look at the earnings growth over the same period of time.  Perhaps earnings are the catalyst for growth in stock price.



Notice that EPS and price increases are the common element for the leader of this group which is Microsoft.

My conclusion is that while stock buy backs may not be the best for the ordinary investor on a macro scale, I don't think stock buy backs are any reason to buy a stock or to avoid a stock.

Good fundamentals including solid balance sheet, increasing earnings per share, a dividend and dividend growth are still the income investor's best metrics for successful investing.

M* MoneyMadam

Disclosure:  Long MSFT, AAPL,

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