The Submarine Basket – a look at Microsoft

I often look at trading opportunities that involve stocks that are under pressure. One of the trading baskets that I utilize is what I call my Submarine Basket. The goal of this basket is simple: to buy beat up, quality stocks, playing for a rebound (does not have to be a full retrace, I am easy to please).

One of the recent beat up stocks is $MSFT. Microsoft decided to buy the handset business of $NOK and the market spoke loudly on what it thought about that. Yikes. However, I see a lot of value in this “dinosaur” – for a trade – especially with the recent announcement that the CEO is retiring (this to me is so positive, in so many ways). With that in mind, I initiated a new trade using Options:

BtO Sep 6w 31 Puts & StO Sep 30 Puts for .08 credit (.19/.27) on 9/4

Translation:

  • I sold to open the September 30 Puts
  • I bought to open the September 6 weekly 31 Puts
  • This was done for a small credit

MSFTI made the above adjustment (got value for the long Puts) on Friday. The next step is to use this premium to build a Call Spread for October (I will sell more Puts, thus making a Risk Reversal Call Spread).

MSFT_B

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