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Apr 6 2011 / Microsoft Stock Symbol - MSFT
Microsoft Stock Analysis
Selling Microsoft Puts Is
Better Than Gold
How Microsoft Stock Returned 33% Annualized Each Year For 8
Years
None of the figures below take into account
inflation. This is a simple calculation.
In April
2003 gold was trading at around $325 US an ounce.
Today (April 6 2011) it is around $1455.00 - This is a
347% return. If I had invested $10,000 in gold at
$325.00 US an ounce and cashed out today I would
have a total of $44,028.30 which includes the return
of my initial $10,000.00. Annualized this is a 20%
gain or an incredible total return of 340%.
However
unlike selling stock options, it would be difficult to have cashed out each
month or year my gold investment and reinvested the earnings into gold as the price
fluctuates greatly making cashing in and out a
difficult strategy. Therefore it would be very hard
to have compound returns with gold, but this is not
the case with Microsoft Stock where when put options expire
or are closed, the income is immediately available
for reinvestment. This is the beauty of selling
options on any stock. Each time the trade ends
the capital is released. It grows monthly and the
cycle is repeated. Let's look at my Microsoft Stock
Analysis to see the returns from my Microsoft
trades.
Below you can see the terrific return on Gold over the past
8 years. The chart tells the entire story. Gold has
been an excellent investment as long as the investor stayed
invested and did not cash out during those periods when gold
went nowhere or declined. But what
about a seemingly "no-go-where" stock like Microsoft?
The chart below shows my Microsoft stock trades over the same 8
year period - a 33% annualized return and a total gain of
925%!
The Microsoft Stock Analysis of my trades shows that
if I had
made just 1% a month with Microsoft options over the course
of 8 years and took my earnings and reinvested them
quarterly back into selling more Microsoft puts, I would have $62,776.00
at the end of 8 years.
Despite earning just 1% monthly selling put
options, the compounding effect creates a 25% annualized
return. (See the top half of the chart above labeled
"Microsoft - Puts")
However
my actual earnings were higher at almost 20% a year. So when I take the same $10,000.00 I now
would have $102,537.86 or annualized it is a 33%
return. (See the bottom half of the above chart
labeled "Microsoft - My Earnings")
Even earning just three quarters percent a month and
continuing to reinvest the earnings from selling
puts returns 24% annualized. (See chart below)
The purpose of this Microsoft
Stock Analysis is to show
the potential earnings power of selling put options even with
a small starting investment and how over time if
those earnings are allowed to grow, selling puts are
not only a superior investment, but they also offer
more income potential than investing in gold. As well over the 8 year
period it offers a true annual return not a return
such as in the case of gold, which can languish for
years while waiting for price appreciation, or in
the case of a stock, stock value appreciation. With
selling options, the income is deposited to my
account the day after the option is sold. My
earnings are immediately credited to my account.
I
believe options offer greater potential for
consistent profits than simply buying and holding
stocks or commodities and either gathering the
dividend, or in the case of gold waiting for a
crisis to push the valuation higher. This is why I
have stayed with the strategy of selling options
against large cap, quality, dividend paying
companies. Over the long haul I don't need to chase
stocks, consider the latest stock tips from hundreds
of newsletters and analysts, jump into whatever is
the hottest stock for the season or look at "too
good to be true" investments.
Instead I spend my time examining
a handful of large cap stocks that are leaders in
their field, have solid earnings and a nice trending
chart like Microsoft Doing studies such as
this Microsoft Stock Analysis have always been my
keys to
