To ALL, Back to investing in Microsoft. As a long-term holder (1987) of Microsoft, I am interested if others with huge gains in the stock are taking defensive (insurance) measures to protect their positions without necessarily getting out of the stock. If so, what is your strategy?
Due to the volatility of the market no one wants to see their gains evaporate. Also, the DOJ onslaught against Microsoft, with no final determination until May may effectively 'put a lid' on Microsoft's stock price.
Tech stocks have been brought down in recent days with the advent of early warning season. The impact of the 'Asian Flu' is hitting almost every tech stock, justified or not. Because of this, are we at a point where a defensive position is called for?
Let me be perfectly clear, I DO NOT want to sell my stock. But I certainly dont' want to watch the value decline significantly. With a lid on appreciation, we may see a selloff in the stock. Granted anyone who sells and waits for a lower priced buying opportunity may end up locking themselves out, but they would have locked in their gains.
My thinking has led me to explore actions available. The most attractive to me involves buying and selling leaps. For example, buy a Jan 99 put at 130 (currently $11 - $12) and selling a covered
Jan 99 call at 160 (currently $12.5 - 13.25). The beauty of the strategy is that you protect yourself on the downside by keeping the call premium to offset the put buy and the put will increase in value to offset any decline in the stock price. If the stock price goes up and beyond $160 by January then the stock will be called and you receive $160 for it.
A better play could have been made days ago when Microsoft was trading in the mid 140's. The Jan 99 put at 130 was priced around $9 and the Jan 99 call at 180 was priced around $9.5.
Until the market sorts itself out, protection may be the name of the game. If windows 98 is delayed, we may not see any significant appreciation in the stock given its current valuation, i.e. PE ratio.
Anyone else using a protective strategy?
Regards,
Bob
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