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[Options] Selling Premium in Microsoft

August 23, 2023

At the risk of sounding like a broken record, I'm continuing my theme of the past week of looking for opportunities to sell premium in mostly delta-neutral options trades.

"Delta-neutral" basically means I'm looking to collect income in sideways consolidations while the broader markets sort out this current correction.

Not only is this a good tactical bet for sideways, sloppy, and messy markets, but it also provides nice portfolio diversification if you have a book of long positions like I do.

We've got a well-known mega-cap stock to use as our vehicle today, so let's get to it.

Here's the Play:

I like selling a $MSFT October 310/370 Short Strangle for an approximately $7.75 credit. This means I'll be short equal amounts of the 310 puts and 370 calls and this position has undefined risk therefore we'll be vigilant in managing our risk:

As long as $MSFT stays north of $315 and south of $367, then I'll continue holding this position until my profit target. But any close outside of these levels is my signal that $MSFT wants to expand its range and I'm not interested in holding out hope that it'll mean-revert to bail me out.

Meanwhile, I'll leave a resting good-til-canceled limit order to close this spread down for a $3.85 debit. This would represent a capture of 50% of the premium collected today. This is my best practice for managing profits on short strangles.

Note: If holding naked options makes me uncomfortable, or if my available buying power is limited, I would define my risks by adding long OTM calls and puts in the same expiration series. This would reduce my initial net credit and I'd change my closing order to be half of whatever my net credit for all four legs would be.

If you have any questions on this trade, please send them here.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.