Back on June 16th when MSFT was $46 we placed a trade that played for a consolidation in the shares over the next month at the mid point of the 2015 range. Here was the trade:
Trade: Buy the MSFT ($46) July 43/46/49 call fly for 1.35
– Buy 1 July 43 call for 3.30
– Sell 2 July 46 calls at 1.05 (2.10 total)
– Buy 1 July 49 call for .15
Now with a little more than a week to July expiration, the stock is still above our breakeven and key technical support but below our sweet spot.
At this point the trade is a defined risk bullish bet that the stock will be above $44.35 on next Friday’s close with losses of up to $1.35 between $43 and $44.35 and gains up to $1.65 between $44.35 and $47.65. Given the volatility in global equity markets, and the relative weakness among large cap tech here in the U.S. I no longer feel this trade offers a good risk reward. At the time of the trade I expected, as most did, a compromise on Greek debt, and did not expect a 35% decline in Chinese stocks. The risk environment has changed, and yet the trade is about break-even. No harm no foul. I am going to now close the position:
Action: Sell to close MSFT ($44.55) July 43/46/49 call fly at 1.40 for a 5 cent gain
My decision is fairly simple. It’s whether I am willing to own MSFT here with a $1.35 risk over the next 7 trading days, and frankly I see little reason to do so.