With Microsoft stuck between $23-$26, how should you game Mister Softy? Don’t make a move until you hear from Scott Nations.
Nations has been monitoring action in Microsoft especially after the company increased its dividend but the news didn’t move the stock.
He says, there's no reason to think it's going to move either. “(However) it's a cash cow and pretty profitable so I don't really want to sell shares but I want to generate some income.”
As a result Nations suggests selling acovered call.
“I like selling the Nov. 25 covered call for 0.55. That's a 2.25% yield to November expiration (much better than the 2.5% annual yield from Treasuries).
“We keep that 0.55 no matter what happens. Stock gets called away above 25 (up 3%) at expiration but the break even is 25.55 (up over 5%).”
How Scott’s Microsoft Trade Makes Money
Stock At $24.40
Profits $24.40- $25.55
Protected $24.40- $23.85
Losses Below $23.85
Learn more about this trade. Watch the video now!
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Trader disclosure: On October 5th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Guy Adami owns (AGU), (INTC), (BTU), (NUE), (C), (GS), (MSFT); Tim Seymour is long (AAPL), (YUM); Tim Seymour's firm is short (MT); Karen Finerman's firm is long (BAC), (JPM), (BDX), (YUM), (MCD), (HPQ), (GOOG), (KFT), (FLS), (JCG), (BBY), (TJX); Scott Nations is long (MSFT); Anthony Scaramucci owns (BDX); Jon Najarian is long & has sold calls in (HD); Jon Najarian is long & has sold calls in (COST); Jon Najarian is long & has sold calls in (GS); Jon Najarian is long & has sold calls in (MS); Jon Najarian is long (STEC) calls; Jon Najarian is long (MOS) calls; Jon Najarian is long (ERTS) calls; Jon Najarian is long (COCO) calls; Joe Terranova is long (EOG), (APA), (AAPL), (OIH), (VRTS), (XBI), (ARUN), (IBM), (XBI), (C), (ORCL), (PEP), (OXY), (SU), (JOYG), (RIG), (IBM), (HES), (RSH), (UPL)
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