Trade Small Trade Often

Monday – Friday | 11:00 – 11:15a CT

"Sale of a Century" - Poor Man's Covered Put In MSFT

Trade Small Trade Often

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Over the weekend, Liz and Jenny received a lot of emails about their trades from the previous week and today they're discussing one of those positions. The trade they are looking at is their "Sale of a Century" trade in Microsoft (MSFT). With these types of trades they either sell a call, short the stock, or place a poor man's covered put. Right now volatility is relatively low in MSFT, so for this "Sale of a Century" trade, they've decided to place a poor man's covered put. They set this trade up by buying a put option in the NOV expiration cycle and then selling a put option in the OCT expiration cycle. With MSFT trading at $47.12, they sell the 46 put in OCT for $0.34 and it has a 65% probability of expiring OTM. In NOV, they buy the NOV 50 put for about $3.60. Both options have about the same amount of extrinsic value and the profit potential on this trade is the difference between the price of the stock at $47.12 and the strike price of $46. This results in a potential profit of $1.12 at expiration for an initial cost of $3.60. If volatility was higher they would most likely sell options, but they have to work with what the market gives them and in their opinion, this is a better strategy given the relatively low level of volatility.

Trade Small Trade Often More installments

See All »

Latest tastytrade Videos As of December 10

Most Shared From the last 30 days