Considering Our Options – $MSFT Calendar (Now Nov Put)

by CC September 23, 2013 3:40 pm • Commentary

A little over a week ago we initiated a trade in MSFT to take advantage of elevated front month vol into their analyst meeting to finance a further out bearish position with the thought that the stocks recent pop wouldn’t last. With the stock just under its 50 day moving average and the Sept option expired, it’s time to take a look at the trade and see what we want to do as far as adjustments.

First, let’s look at the original trade:

Trade: MSFT ($33) Bought Sept / Nov $32 Put Calendar for .73
  • Sold 1 Sept 32 Put at .17
  • Bought 1 Nov 32 Put for .90

With September expired, the structure is now just long the Nov 32 put for .73 (currently trading at .83) The stock is now just below its 50 day moving average, meaning, any further weakness could mean 32 or lower in the stock. What we’ll probably look to do is sell the October 32 put against the Nov on any weakness from here (the lower the better) Ideally we’d like to initiate that new calendar when the Nov option is at least 90c bid, which would mean we’d be putting on the calendar at the point where the entire Sept collection can then be added to any additional Oct decay.

If in fact the stock does meaningfully break this 50 day that it’s near, 32 and even 31 are not out of the question:

Screen Shot 2013-09-23 at 1.35.35 PM
from LiveVol Pro

Look for us to make a move on further weakness as we don’t love just being naked long that Nov put with a break even down near 31 and change. If the stock was to hold and rally from here we’d look to either put on the calendar as protection or close the position entirely for a small profit. We’ll update on the site when we make a move.