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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe
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To: Dan Duchardt who wrote (963)3/2/2004 10:50:16 AM
From: Bridge Player  Read Replies (2) of 1064
 
Dan, I have been seeing a lot of recommendations of Microsoft by analysts recently. They say it has a lower multiple than a lot of tech stocks, huge cash hoard, and has been out of favor for several years. All the obvious things.

Here is an interesting play using leaps, for those with a long-term horizon on the company and patience.

Buy: MSFT Jan 2006 25 call; $4.70 asked (3/2/2004, 10:45 EST)
Sell: MSFT Jan 2006 30 call; $2.40 bid (3/2/2004, 10:45 EST)

Net cost: $2.30 plus commissions.

At expiration in 22 months, breaks even at all prices for MSFT north of $27.30, less than $1 above current price of $26.58. Doubles at all prices north of $29.60.

Very modest dividends in the meantime help to offset commissions.

Interesting thought for those inclined to think that softie will put that big cash hoard to work in a useful way in the next couple of years.
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