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Since last week when MSFT was at 80 if you sold May puts against cash, one
strike in the money each time it dropped a strike, you would get about $6+.
That was one strike's worth plus a buck. That put your effective cost at
one strike lower. Like today if you timed it and sold the May70P the take
was 6 7/8 minus commish and the stock ended the day at 66 5/8. If you get
assigned at 70 then you effectively bought it at 63+ all things considered.
If the stock rebounds above 70 without assignment, you keep the 6 7/8 or
cover at some point on the way back up as time decay and volatility take
their toll on the put in your favor. So even if you are assigned you made 6
7/8 on 35(50%margin) for percent gain of 19.64% in one month or less. If
you then write 70 calls you can probably rake in another $5 so 6 7/8 plus 5
= 11 7/8 or 11.875/35 = 33.93% gain for one month. Doesn't seem like a bad
day job to me.
BobR
----- Original Message -----
From: Ned Markson <cnedgo@xxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Cc: <realtraders@xxxxxxxxxxxxxxx>
Sent: Monday, April 24, 2000 1:06 PM
Subject: [RT] Re: More MSFT
> MSFT is a past master at the art of sandbagging the market. I find that
> the contrarian approach works well when you view their earnings
> warnings. In the case of today's news, it looks like a perfect setup.
> It's clear that even if they lose today's battle they still have a
> magnificent opportunity to ultimately win the war :) It's sort of like
> chopping a worm in half. Where there was one, now there are two with an
> identical gene structure -- ultimately, the stockholders, if they are
> long termers, will win also.
>
> Ned
>
> JW wrote:
> >
> > >From TheStreet.com email newsletter...
> >
> > JW
> > ----------
> >
> > Herb on TheStreet: Does Microsoft Really Have Reason to Be This Gloomy?
> >
> > By Herb Greenberg
> > Senior Columnist
> > 4/24/00 11:23 AM ET
> >
> > >From the contrarian department: "Maybe the real story is: why does
> > Microsoft (MSFT:Nasdaq) want to knock its stock down?" So started a
> > lengthy email from Michael Murphy of the California Technology Stock
> > Letter, in response to my question late Sunday night: "What's your take
> > on Microsoft, now?" The "now" referred to his recommendation to buy
> > Microsoft two weeks ago after the company warned of a
> > weaker-than-expected third quarter.
> >
> > So, what does the outspoken Murphy think now?
> >
> > "They're lying," he wrote back. "Again."
> >
> > His reasons:
> >
> > "A. They have lots of cash, so if they can cut off the flow of cash to
> > everyone else it's easier for them to win?
> >
> > B. It lowers the cost of the stock buybacks and reduces the accounting
> > charge for options?
> >
> > C.???"
> >
> > He went on to say he was "shocked" to see Cramer's comments, in his
> > initial Microsoft conference call column, say, "I have never heard this
> > company talk down earnings before." "It does it EVERY TIME," Murphy
> > says. "It brought the whole sector down in July '99 and July '98 by
> > forecasting sharp slowdowns in its business that never happened." (He
> > says he went to 100% cash in his newsletter on July 14, 1999, because
> > he expected Microsoft to forecast slow growth on the conference call.)
> > "A simple review of its quarterly conference calls for the last four or
> > five years," he continues, "will show its forecasts are almost always
> > lowball and usually are WAY wrong. It will say its revenue growth is
> > about to slow when it is about to accelerate. It will say PC sales look
> > weak right after Intel (INTC:Nasdaq) has said they look strong -- and
> > Intel turns out to be right.
> >
> > "Look at this call. They sent the controller to do most of it. Even
> > though revenue was light, it beat the number by 2 cents. The damage to
> > the stock was already done, why not just meet the number and save the 2
> > cents for the June quarter? So instead of reporting 41 cents for March
> > and then 43 cents for June, now [it has] done 43 cents and set itself
> > up for sequentially flat.
> >
> > "But no! Now he (and/or the CFO, who joined the call later) goes on to
> > say that estimates for the June Q look a little high and he'd shave a
> > penny or two off them! So now he's created expectations for a
> > sequentially down quarter. Of course, you have to believe that a
> > Microsoft June fourth [fiscal] quarter, including a full three months
> > of Windows 2000 shipments, can somehow be weaker than the
> > post-Christmas March quarter with almost no OEM sales for the first six
> > weeks. Notice that it said OEM sales were weak in January and February.
> > Funny how it didn't mention March, when OEM sales took off and have
> > continued strong.
> >
> > "THEN it had the gall to say although it hasn't finished its FY '01
> > planning process, the Street consensus of $1.93 looks about a nickel
> > high. I submit that at this point in time there is no statistically
> > significant difference between an estimate of $1.93 and an estimate of
> > $1.88, especially given that it hasn't even finished the planning
> > process. So why did it say that, other than to lowball the Street and
> > knock the stock down?"
> >
> > Maybe so it can show the government that Microsoft is not really the
> > monopoly it's being made out to be because its stock has nearly been
> > halved from its high? Hey, in this wacko world, stranger things have
> > happened.
> >
> > Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's
> > editorial policy, he doesn't own or short individual stocks, though he
> > owns stock in TheStreet.com. He also doesn't invest in hedge funds or
> > other private investment partnerships. He welcomes your feedback at
> > herb@xxxxxxxxxxxxxx Greenberg also writes a monthly column for Fortune.
> >
> > Mark Martinez assisted with the reporting of this column.
>
>
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