Sold MSFT Naked Put

Microsoft ($MSFT) was on my watch list when stocks were falling dramatically every day. I thought they were being overly punished and being sold by some traders simply to free up cash and cover margin calls created by the deeper declines in other stocks. However, I didn’t want to jump in too soon and risk trying to catch a falling knife. The knife (or dead cat) bounced last week and I decided to go ahead and take the risk today.

While MSFT was trading at $162.15, I sold one MSFT June $155 naked put for $10.15 and received $1,014.36 after paying $0.64 in commission. MSFT fell as low as $132.52 at the beginning of last week and could easily retest that low, but I see the low $130s as a likely floor for a company that has so much cash and a thriving cloud business.

MSFT’s 10-day moving average is ascending quickly and will move back above its 20 and 200-day moving averages as early as Thursday, if not tomorrow. This convergence of moving averages will be bullish at best and will offer another spot of potential support at worst. That support range appears to be close to $150, which would leave my option with a paper profit with plenty of time to rebound before June expiration.

I have a cushion of 10.72% before I take a loss on this trade and 7.0% upside (31.12% annualized) if I’m not assigned the naked put. MSFT could even drop 4.47% and I’d still make a full gain on the trade. That’s the kind of trade I like to make.