MSFT – Microsoft Corporation – Options players populating Microsoft Corp. today initiated bearish strategies on the stock with the software maker’s shares edging down 1.15% to trade at $25.02 with 40 minutes remaining before the closing bell. One pessimistic trader enacted a ratio put spread in the January 2010 contract to position for continued erosion in the price of the underlying shares through expiration. The investor purchased 5,000 puts at the January 2010 $25 strike for a premium of $2.25 each, and sold 10,000 puts at the lower January 2010 $20 strike for a premium of $0.74 apiece. The net cost of the transaction amounts to $0.77 per contract. Thus, the trader is poised to profit if MSFT’s shares decline another 3.15% to breach the effective breakeven price of $24.23 by expiration day. Maximum potential profits of $4.23 per contract are available to the investor if the software giant’s shares fall 20% from the current price of $25.02 to settle at $20.00 at expiration. The overall reading of options implied volatility on the stock is up 5.2% to 29.07%.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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