Microsoft (MSFT) 11/19/09 PriceWatch Alert Targets 3.92% Downside Protection

Posted: Thursday, November 19, 2009 8:25 AM EDT
By: Market Intelligence Center Staff

Microsoft (NasdaqNM: MSFT) closed yesterday at $30.11. So far the stock has hit a 52-week low of $14.87 and 52-week high of $30.14. Microsoft stock has been showing support around 29.69 and resistance in the 30.35 range. Technical indicators for the stock are Bullish and S&P gives MSFT a neutral 3 STAR (out of 5) hold rating. MSFT appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Jan '10 30 covered call (MSQ AF) for a net debit in the $28.93 area. That is also the break even stock price for this trade. This covered call has a 58 day duration, provides 3.92% downside protection and a 3.70% assigned return rate for a 23.28% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the MSFT Jan '11 17.50 Call (VMF AW) and selling the Jan '10 30 call (MSQ AF) for an $11.77 debit. The trade has a 58 day life and would provide 2.79% downside protection and a 6.20% assigned return rate for a 39.00% annualized return rate (for comparison purposes only). Microsoft has a current annual dividend yield of 1.76%. [THA-Seven Summits Research]