Full Disclosure Finance

By Andrew,

In a recent post I wrote about the deep-in-the-money calls option strategy. In the post I used Microsoft (MSFT) as an example of how to implement the strategy. Calculating the ‘premium’ based on the current stock price, the strike price, and the option cost we found that the July 2008 $24.00 calls (MSQGD.X) looked interesting. Using my paper trading account at Investopedia.com I set up an order to purchase 10 of the July $24.00 calls for a price of $5.90 or better. Microsoft’s stock took a bit of a dip on the day I placed my order and I ended up getting the calls for $5.15…even better. Unfortunately Investopedia doesn’t support good-till-canceled limit orders and I don’t have access to streaming option quotes so I’ll have to stay on top of the price action to see if it hits our target. Once the price of the calls reaches $6.15 we will assume that our sell order was executed locking in the $1000 gain. The calls are already at $5.70 meaning we are more than half way to our target. Since my ‘purchase’ the stock has only moved 2.1% while our calls have moved 10.7%…talk about leverage. I’m starting to see why options are so popular.

Stay tuned for more updates on our strategy experiment as well as other potential candidates that may fit the bill for deep-in-the-money calls.