Dow Jones soars above 23,000. Is it too stretched? >>> READ MORE

A High-Risk Option Play on Microsoft

Replacing positions in Microsoft and Apple are high risk-high reward


Microsoft (NASDAQ:MSFT) earnings are due out after the market close on Thursday (7/19).

Do you have the risk capital to take a very high-risk position on the stock? Would you want to do a split position and also sell an option on a winning company like Apple (NASDAQ:AAPL) to provide the capital you need to buy a MSFT put?

If you do, here we go.

Microsoft, as a company, is going nowhere fast. It lives off an installed base that is very slowly but also very definitely shrinking, that base being eaten away by Apple tablets, Apple laptops and to a much more limited extent, Apple desktops.

This is especially true for the consumer marketplace but the iPad has crossed the Microsoft moat in many corporations. I believe analysts accept some but not all of this and are wondering how the European recession, the U.S. slowdown and Apple is hurting sales.

And therefore I believe earnings and the company forecast will disappoint analysts and traders this Thursday. Technically, Microsoft stock is trading off its highs near $32 and has not been able to get back above $30. So, take a look at the July $30 puts and if you are really a buccaneer, something out of the money like the $29 puts.

Pay for this — maybe — by selling some Apple puts. The Apple July $600 put sells for around two bucks — $200 a contract. Who would not want to own AAPL at $600 — I have put positions at strikes higher than that, I write puts on fair prices and AAPL at $600 is cheaper than cheap.

Anyway, sell some Apple put contracts and you have a bit of cash to buy some MSFT puts. Or if supporting an Apple put is too expensive — at $600 that means $60,000 in capital to support a contract — look at SanDisk (NASDAQ:SNDK).

SanDisk makes the kind of chips that go into iPhones and iPads, and the puts are very rich in premium; as I write this a put that expires in three days will return 3% to you if it expires worthless. There is one big caveat — its earnings also come out on July 19. The stock has been hammered this year. I think it will surprise some people. You will see some short covering and you will get a pop in the stock.

Think about it.

Michael Shulman is editor of Options Income Blue Print. Learn more about trading weekly options in this free short video.

For purposes of disclosure, Michael Shulman owns shares of the AAPL.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC