Investing with Options

Today’s market activity feels a lot like the day before and the day before and so on.  Without a resolution it is going to be tough for the market to get a breeze.  Besides AAPL moving around intraday things are really stuck in the mud.  Whatever I end up doing has to get past the current sideways slosh about that passes for market activity these days.  At this point I am interested in adding some longs to my portfolio but what to buy and where?

I have had some success with MSFT lately and the name has gotten dirt cheap again.  It is only trading $2+ above where it was during the Euro Crisis last year.  My guess is that Surface was not well received and that Windows 8 is just so so but MSFT is on to something in the touch world for computers and they have to start somewhere.  Folks are not use to MSFT stepping out.  MSFT is still maintaining earnings not just growing them very fast as in only a .01 more in 2012 than 2011.  Still the company makes lots of dough and can buy themselves out with current cash flow in 7 years.

Charts by

What is nice now is that the 2014 leaps are trading for dirt cheap prices.  Implied volatility has gotten very low and really no one seems to care.  I think a straight out call buy with a year hold with the IV this low is the best play.  Just use the leverage in the option for your edge and buy more contracts than you would stock for a lot less money.  By the end of 2013 you will have your own kind of dividend.  There are lots of these old tech stocks that look like this with cheaper long term calls.

The Trade

A straight out buy of ATM calls in MSFT in the Jan 2014 cycle makes the most sense with IV this cheap.  Sometimes when there is so much noise you have to K.I.S.S.  Hold for 1 year.

I have a MSFT position.

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