June 17
2011 / Microsoft Stock - Stock Symbol MSFT (Nasdaq)
Microsoft Stock Options
Continuing The Put Ladder
3 Years Of
Selling Puts
Microsoft continues to perform well. After 3
years of selling Microsoft options, today's
option expiry allows me to extend the reverse
put ladder on Microsoft. The advantage of the
reverse put ladder is to bring in more premium
and all the while selling the put strikes out of
the money, but still earning decent premiums due
to selling puts far enough out in time. As well
should the stock fall, there is a very good
chance that only some of the puts may end up in
the money, allowing me to continue to roll my
puts further out and down.
The Reverse Put Ladder Explained
For example,
with options expiry today, I bought and
closed the June $25 puts and June $24 puts for profit.
These puts were part of the previous put ladder options from
previous months. Meanwhile the options ladder remains intact
as I am still holding puts for July at the $23
strike and October at the $21 strike. That left a whole
in the options ladder. Therefore as August
didn't have any puts sold, I sold
puts in August at the $23 and $22 strike. When July
options expire I will continue the ladder option and
sell September put strikes. The
August puts I can roll into November or December. The
further out the puts go the lower I can stay with my
strikes. This is the beauty of the reverse put ladder.
(its called reverse as I am moving down not up with my
strikes).
Looking at the chart below you can see that I am now
holding puts at the lows for the last year and below
those lows. In my comments on May 23 2011 I indicated
the $24 strike is probably a pretty decent strike to
consider long term. By staying just below $24, I know
that if assigned I will be holding shares at the low for
the year which should give me a very good chance in a
sell off, that the stock will eventually recover to the
$24 strike.
.
Rolling My Deep In The Money Puts
Today I also
rolled my July $27 puts. The reason for doing this is
because with the stock at $24.00 and just 1 month to go I
may find that the stock is assigned to me before I want to
take possession. By rolling now I avoid that or if assigned
after rolling, at least I have earned more income from the
roll
Meanwhile though usually I roll out and try to reduce the
number of put contracts with that roll. Unfortunately I was
unable to roll out and reduce the number of contracts from 6
puts to 5 puts without taking a net debit. Therefore,
instead I rolled out to January 2012, but lower to the strike of
$26.00 with the same 6 contracts. This resulted in a saving
of 6000.00 in capital since I rolled down 1 strike and gave
me a net credit. It also lowers the strike so this $26
now remains the top rung of the ladder.
SUMMARY
Because of the put option ladder, I am able to stay out
of the money, reduce my cost basis in the stock and continue
to bring in more income with every trade. Microsoft stock
remains an excellent option trade and since starting this
short put strategy,
I
have earned double digits annually for the past 3 years.
