By - GankingPirat
Microsoft isn't just tech it's also a solid blue chip. Zooming out 5y last years wasn't THAT uncharacteristic for it. In fact, it was less growth than 2019. 40% has been pretty standard for it in recent years. I don't know why that would slow now. It's a hell of a powerhouse of a company. If appl can be 3T I can definitely see msft hitting 3T sooner rather than later. The long leg will likely be very profitable, the short leg could get taken from you if you don't pay attention to timing when you sell them.
Thanks for the outlook! I'm thinking about selling weekly calls on it, to be more flexible
Do you mean you are looking to do a cash secured put? I don’t understand your post.
Edit: OP has fixed post to include a call option.
He's just referencing the LEAP portion of the PMCC. OP, only you can decide if MSFT is a stock you'd like to hold long term. What research have you done into their valuation or future? Have you done any due diligence on the Activision acquisition?
He’s quoting a “put” in the post?
Corrected, It's 1AM
PMCC is Poor Man's Covered Call - well this is timely: https://www.reddit.com/r/options/comments/s7rgyy/using_leaps_for_covered_call_writing/
He’s quoting a “put” in the post, which is why I am asking.
I'm stupid and put both the wrong Strike and the Wrong option in the post
Running it with a single LEAPS could be fun and I'm bullish on MS over the next two years, but I think this year will be very volatile so I don't think I could safely pick where to put the CC's strike, personally.
I'm high, I meant CALL..
So you want to long a call that’s in the money? I would maybe choose a slightly higher strike if that’s the case. As long as delta is decent
I chose the 235 Call because it's 0.8 delta, which is recommended for PMCC. Which delta would you choose?
Probably something around .9 delta but depends how high IV is at the time bc that would change the premium paid
I think you chose a good strike
Ah, so not a theta gang question at all then.
I see it discussed here quite often, and the CC is theta, cmon
But your question in the OP is just about buying a LEAP?
I thougt I didn't need to mention the CC I would write on the LEAP, I would sell the 30-45 DTE 0.3 Delta call
Good idea. Not sure about ATVI. but nuance they bought earlier was very good stock. 300 strike for short leg
Why 300 for the short call? That's ITM right now?
If this post doesn't go to show you how inexperienced people are throwing money into the market, then I have a bridge to sell you.
Care to enumerate?
Yes. Do it now.
Great entry point. If it keeps drilling all your sold calls expire worthless. If it rebounds you got that LEAPS printing for you.
Ask yourself, do you think Microsoft will close over $325 (breakeven price) in two years? If yes, then enter the position and start theta farming.
Hey thanks for the answer, what do you think about waiting for VIX to go lower? Or would you want to take advantage of that for the short call?
Curious if you bought prior to earnings?
As for buying LEAPS using volatility indicators I find it as a catch 22. If you wait for VIX to go down, odds are prices are moving back up again making your overall LEAPS more expensive. So VIX level doesn't really factor in compared to other indicators for me. I just want to get the lowest priced LEAPS I can in a stock I feel will grow over time. I do prefer selling short calls when IV is elevated, but for me I sell 7-30DTE, so I try to let theta work harder for me to profit rather than IV crush by selling when VIX is elevated. They are related though and you can profit either way with your short call sell timing.
Hey man, I'm thinking of opening the trade now, VIX at 23 and Microsoft at 305.. I think it's a good time now to start theta farming
Seems like a good call.
Couple things to consider:
1) How many contracts are you going to run PMCC on MSFT with?
2) What DTE short call are you going to sell?
3) If your short call is breached (aka ITM), what are you going to do?
4) If MSFT pulls a FB and tanks, what are you going to do?
5) How long do you plan to run this strategy for?
These should all at least be considered PRIOR to entering a trade. If you are satisfied with all your answers to the above questions, then enter the trade and start theta farming.
First of all, thanks for challenging my idea and forcing me to think about what I'm doing.
1. I will run one contract since this is my first PMCC and it takes up a lot of margin (around 4500).
2. I will sell weekly, because I do have the time to watch the market and adjust and roll if necessary, and weekly gives a higher return. I entered the trade yesterday with Microsoft at 305 (should have done it at the end of the day with MSFT at 300, but that doesn't really matter long term) and sold the 4DTE 312.5 Call for an easy 1.11 credit. As far as I know, 30-45 is advantageous because of the lower effort and management, but since I have the time I think weeklies are more profitable. Please correct me if I'm wrong.
3. Since I will be watching my positions closely, I'm definitely looking to roll before the short call goes ITM. If it actually goes ITM, I'm still gonna look to roll for a credit if possible, if it goes super deep ITM for some reason, I don't mind closing out the trade for a profit.
4. If MSFT tanks I will be looking into the reasons why it tanked, since I think it's a super solid company with a much better long-term set up than FB. I bought the Jan 24 Call, so if it tanks within the next year I will probably hold on and keep selling Calls, since I'm quite convinced it will come back. Depends on how much it tanks, of course.
5. I don't mind closing this strategy at a 30-50% gain on my LEAPs, but if MSFT keeps being solid, I can see holding on to this LEAP for longer.
Hey man, you are welcome! All things I've learned (the hard way) to ask myself prior to opening a trade. Just trying to help you learn from my mistakes. Great answers and well thought out responses, so I'll just give some high level responses and should be good to go on making tendies for the long term.
1. Nothing wrong with 1, gotta start somewhere. I've found diversifying my PMCC amongst a handful of tickers I like helps eliminate some single stock risk to the portfolio.
2. I used to sell exclusively weeklies as well, just like you was allured with the higher per week premiums compared to 30-45 DTE. I'm now selling 30 DTE because my short call kept getting blown through almost every week, even though I was only selling .2 Delta calls. Not a bad thing as my LEAPS were printing, but still a pain. So I moved to 30 DTE and have been happier with it. To each their own here, and in a sideways to bear market you will come out ahead of me in premium received, in a bull market I might beat you in total returns. My advice: research Gamma and really wrap your head around the risks associated with it and weeklies.
3. Agree 100% here with rolling prior to the short call going ITM. I've tried to just sit tight and see if it would come back down. It's dang hard to get a roll OTM, with a credit, from a short call that is deep ITM. Much easier to roll for a credit when the short call is ATM. Plus you keep the short call OTM this way.
4. Good answer. With the strike you picked you have plenty of downside protection to keep selling calls against on the way down and pocket the premium along the way.
5. My thoughts here are try to hold the LEAPS longer than a year for taxes. Getting taxed at 15% Long Term is WAY better long term than trying to swing trade the LEAPS and run PMCC at the same time getting in and out of the market.
Welcome to the MSFT PMCC Club!
Have not bought yet, but I will probably soon.
I agree on the catch-22, it's probably better to start theta farming early as possible
Are you looking to sell a put? I thought PMCC positions use long-dated deep ITM call options as leverage to write covered calls, generating income from the premium.
If you are looking at opening a PMCC, you should be looking at calls not puts.
I think I'd wait until mid Feb, personally. Things are uncertain. Then again, Microsoft isn't going anywhere; if there's a tech stock to PMCC it's probably this one.
you can ever time this market.. just sell put or do spread
You’re going to need to provide more info to receive some feedback. What do you want to sell against that LEAPS ?
So, I want to either sell weekly calls or 30-45 DTE. Looking for 0.3 Delta for either. What would you suggest?
Aight will do
With a put you're betting on the stock tanking. You \*can\* do that, but I don't think that's what you want to do according to the rest of the post
Personally, I'd still wait a bit. I'm guessing the next two FOMC meetings will be key. And I'm willing to bet the first one will be "hey, inflation is only supply chain based, we do some rate adjusting but only one or two in the year", markets happy. And the next one is JPow "oops, no, my mistake, inflation strong, 4 rate adjustments in 2022". And that will be the moment to get in with everything
Edit: NOT FINANCIAL ADVICE, this is only what my crystal ball is saying, and I only look at it because my 8-ball is leaking some liquid
The liquidity on Microsoft sucks, wide markets as well and honest its fully valued at this point. Yes I am super bullish on the company but that burn from the dot com bubble stings if you invested in the 90s, PTSD after MSFT being in a bear market for a decade. Sure the situation is completely different now, but is it?
Cloud is not going anywhere, 95% of all exisiting companies are migrating, these future billions dollar software IPOs are all tech companies which need cloud. People really underestimate how almost every company in the world will be paying a % for cloud one day, directly or indirectly. Don't need to pick MSFT. Google and Amazon will rise with the industry too.
Compared with any other blue chip like Starbucks, Unilever, Altria and none are in markets that are growing so rapidly YoY.