Have to love that volatility when you’re slinging covered calls on blue chippers!
The market has now decided that Microsoft’s outlook is not fatal, at least for the time being. We initially bought MSFT at 29.76 on Oct 5th, selling one covered call simultaneously, and another one into the ensuing crash.
This reduced our cost on these shares to 28.69 each. That looks fantastic right now, with MSFT closing today at 29.86 – we won’t be able to book all of the gains, as the shares will be called away at 29.00, but we’re still in OK shape.
In hindsight it’d have been better to wait before selling that second call. Easier said than done, though – looking at the chart two weeks ago, I didn’t see much to indicate this rally might ensue.
The take on MSFT goes from bad to a little less bad. (via StockCharts.com – click to enlarge)
It turns out the decision to buy back that first call position at a nearly 80% profit was the correct one, as this was an immediate profit booked, and it provided us with the ability to sell another call.
MSFT’s 10-day MA still trails the 20-day EMA, and the selling pressure indicated by the CMF remains negative, so this move up could prove to be short lived. The second call sold may end up being the right move. Also we’ll be collecting MSFT’s nice $0.20 dividend this month, which isn’t bad either.
Remember that all of this controlled mayhem is occurring within the cozy confines of a tax-advantaged IRA account. I would hate to try this in a normal taxable account!