New Microsoft Options Offer Potential Returns for Investors

Investors in Microsoft Corporation (Symbol: MSFT) noted the start of trading for new options today, intended for expiration on May 23rd. Utilizing our YieldBoost formula at Stock Options Channel, we examined the MSFT options chain and identified one noteworthy put and one call contract.

Analysis of the Put Option

The put contract at the $370.00 strike price currently has a bid of $12.40. By selling to open this put contract, an investor agrees to purchase MSFT shares at $370.00, while also collecting the premium. This arrangement effectively lowers the cost basis for the shares to $357.60, not including broker commissions. For investors planning to buy MSFT shares, this may present an appealing alternative compared to the current market price of $372.58 per share.

With the $370.00 strike price being about a 1% discount to the current trading price, the put could potentially expire worthless. Current analytical data estimate the chances of this occurring at 57%. Over time, Stock Options Channel will monitor and publish updates on these odds on our website. Should this put expire worthless, the received premium would yield a 3.35% return on the cash commitment, equating to an annualized rate of 24.46%, known as the YieldBoost.

Below is a chart illustrating Microsoft Corporation’s trading history over the last twelve months, highlighting the position of the $370.00 strike in green:

Exploring the Call Option

Turning to the call options, we see a contract at the $375.00 strike price with a current bid of $14.65. If an investor buys shares of MSFT at today’s price of $372.58 and sells to open that call as a “covered call,” they commit to selling the stock at $375.00. After accounting for the premium, this strategy could yield a total return of 4.58% if the shares are called away at the May 23rd expiration, excluding dividends and broker commissions. Investors should remain aware of potential upside gains if MSFT shares experience significant appreciation, necessitating a thorough review of both the trading history and company fundamentals.

This chart below shows the trailing trading history for Microsoft Corporation with the $375.00 strike marked in red:

Noting that the $375.00 strike is approximately 1% above the current trading price, the covered call could also expire without value. In this case, the investor retains both their shares and the premium collected. Current data suggest a 48% probability of this happening. Stock Options Channel will track this probability over time, providing ongoing updates on our website, including a historical chart of the option contract. Should the covered call expire worthless, the premium would add a 3.93% extra return to the investor, resulting in an annualized YieldBoost of 28.70%.

The implied volatility for the put contract stands at 30%, while the call contract shows an implied volatility of 29%. In contrast, the actual trailing twelve-month volatility, based on the last 251 trading days and the current price of $372.58, is calculated at 22%. To explore more put and call options contracts, visit StockOptionsChannel.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.