Option trade on Microsoft

Microsoft is firing on all cylinders and the stock is reflecting a solid strategy for the future. Their recent announcements on developer tools, success with Office 365, and positive reviews of Windows 10 bodes well for the company's future. While the stock has been doing well with their recent run up from $47 to $54 since the earnings release 5 weeks ago, we'd like to enter into a position upon a pullback. Long-term investors would likely do well buying the stock at current prices, however it trades at a P/E of 36 which is rich for a mega-cap technology stock.

We are selling the January $50 Puts for $0.27 and would look at entering into a position if the stock drops below $49.73. If the stock stays above $50 over the next 45 days, the puts will expire worthless and we will pocket the premium. This doesn't seem like a worthwhile trade because we're only collecting $27, but if you like the company, and want to get in at a better price, this is the right strategy. If the stock drops below $50 we will likely put on a more aggressive option strategy with greater potential upside.