Update – Closing $MSFT Put Calendar

by CC June 15, 2016 1:53 pm • Trade Updates

On more than one occasion over the last few days since Microsoft’s (MSFT) announcement that they are buying LinkedIn (LNKD) for $26 billion, Dan has offered some skeptical thoughts on the reasoning for such an acquisition (read here). We can debate all day on the merits of the purchase long term and how MSFT will integrate LNKD to their existing products. For now MSFT shareholders have voted by selling on the deal news as the company has indicated it will fund the all cash deal with new debt.

In early June we expressed a bearish view on MSFT, in an attempt to finance longer dated puts, by selling nearer dated ones. After the stock’s move this week through our strikes, we now have to be manage the trade prior to Friday’s close. Here was the original trade when the stock was above $52.40 on June 2nd:  

*Trade: MSFT ($52.40) Buy June / July 22nd weekly 51 Put Calendar for 95 cents
  • Sell to open 1 June 51 put at 30 cents
  • Buy to open 1 July 22nd weekly 51 put for 1.25

The idea at the time was to finance puts that captured MSFT’s next earnings release, July 19th. Since we financed those puts with a sale of 51 strike puts expiring this week we need to be careful with the stock now below that strike on the LNKD news. The position is now long deltas (until Friday expiration), which wasn’t really the objective here.

With the stock at $49.95, this trade is worth 1.15 mark to market vs. the .95 originally played. But it is also long 35 deltas with this weeks 31 puts nearly 100 deltas with little to no extrinsic premium left on them.

So there’s risk of the trade becoming a loser if the stock goes lower from here. If the stock goes higher towards 51 the trade makes money mark to market and also has the chance for a really nice profit if the 51 calls still end up worthless. A rally back to 51 by Friday is less likely as the week goes on so we’re going see the market’s reaction to the Fed rate decision soon and stop the position at break-even.

UPDATE 2:30pm: We are going to close this position as lower from here makes this position a quick loser and don’t see the need  making a two day bullish play in MSFT, which is essentially what we are doing by sticking with the position at this point.

Action: MSFT ($49.91) Sell to close June / July 22nd weekly expiration 51 Put Spread at $1.10 for a 15 cent gain

-Buy to close 1 June 51 put for 1.20

-Sell to close 1 July 22nd weekly 51 put at 2.30

We will once again look for a short entry on a move closer to $50 prior to their upcoming earnings results on July 19th. Stay Tuned.