Close the Microsoft option trade for a 728% gain in less than 2 months

October 23, 2015 - 12:32 pm

On Aug 26th, 2015 we put on a synthetic long position on MSFT (http://aplustrades.com/articles/2015/08/26/bullish-long-term-option-trad...) by selling the Jan 2016 $30 Put for $1.65, buying the $43 Call for $3.90, and selling the same month $50 Call for $1.75 to help finance the cost of the trade. The total outlay for the trade was .50 cents per set of contracts, all of which were expiring in Jan 2017.

After crushing earnings yesterday the stock is trading over $53, and because of our short call at $50 we can't profit any more on the upside without taking off the short call. Thus, we are closing the trade today as follows:
- Buy back the $50 Calls for $6.50
- Sell the $43 Calls for $11.05
- Buy back the $30 Puts for $0.41, although you could ride these out and let them expire but we're closing the trade

This yields a net of a gain of $3.64 on the set of options which we paid $0.50 cents to get into. This is a 728% gain on the total set of options, not bad for 2 months. On a sidenote, MSFT seems to be on a great run, and being a long-term holder of the stock is likely to reward investors.