Microsoft (Symbol-MSFT) - whereto

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kcowan
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Post by kcowan »

Gates has been after click charges since he interviewed the CEO of an ATM processor* in Bellevue (Seattle) in the early 90s about their satisfaction as a beta site for Excel. And then about how they made their money.

(* The Exchange Network)
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Post by Bylo Selhi »

IBM has been offering this sort of usage-based pricing on their mainframes for at least the last decade. While the corporate enterprise market may be different from consumer PCs, the concept does work and can be a win-win. In any case consumers are used to this sort of thing already, not only with ATM "convenience" fees as kcowan points out, but also, e.g. long distance and cellphone airtime, pay-per-view TV, etc.
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Post by IdOp »

Bylo Selhi wrote:... can be a win-win. In any case consumers are used to this sort of thing already, not only with ATM "convenience" fees as kcowan points out, but also, e.g. long distance and cellphone airtime, pay-per-view TV, etc.
All true, but if this becomes a part of the mainstream Windows desktop, how many FWF WIndows users would get excited about this, and how many would draw the line in the sand?

ADDED: Time for a poll? :)
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Post by Peculiar_Investor »

Thought of putting this under Feb humour, but it is factual. Microsoft wants refund from some laid-off workers. Note also that today Microsoft announced that those overpaid can keep the extra.

Makes me wonder, since this was the first mass layoff from Microsoft, was this a beta of Microsoft Layoff, or was it a .0 release of Microsoft Layoff :wink:
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Bylo Selhi
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Post by Bylo Selhi »

Peculiar_Investor wrote:today Microsoft announced that those overpaid can keep the extra
Well today is a Tuesday(*)
Makes me wonder, since this was the first mass layoff from Microsoft, was this a beta of Microsoft Layoff, or was it a .0 release of Microsoft Layoff :wink:
Hmmm... I wonder if this is will also be included in MSDN or MAPS subscriptions :lol:

(*) for those who don't appreciate the significance, Patch Tuesday.
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Post by Peculiar_Investor »

From WSJ, In a First, Microsoft Readies Bond Sale. As an investor and shareowner, I'm left to wonder why a company that has $25 Billion in cash would need to tap the bond market for upwards of $15B for "generic" purposes.
In its prospectus, Microsoft said it will use net proceeds from the sale for general corporate purposes, including working capital, capital expenditures, and repurchases of its capital stock.
I'm sure the speculation will continue on the real purpose and whether a big acquisition is in the works.
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Post by George$ »

Oh my. Tomorrow ... :cry:

Microsoft Profit Falls 29% as Slowdown Hurts Sales -- reported July 23, 2009 after markets close
Microsoft fell $1.82 to $23.74 in extended trading, after closing at $25.56 on the Nasdaq Stock Market. The stock jumped 29 percent last quarter.
:shock: :wink:
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Post by Norbert Schlenker »

News from the front.

I'm stuck for a few days in Bellingham, WA. If the local Best Buy is any indication of retail interest in Windows 7, I'd be shorting MSFT.
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Post by Shakespeare »

Why would anyone upgrade? All Bill's Borgs have done for the last half-dozen years is to bloat the software sufficiently to completely use up the advantages of each further hardware improvement. :roll:
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Post by IdOp »

But, but, but Windows 7 is far more streamlined than Vista.

I liked this quote in the article:
Steve Ballmer wrote:Vista was not a mistake, Vista was controversial.
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Post by Peculiar_Investor »

Norbert Schlenker wrote:News from the front.

I'm stuck for a few days in Bellingham, WA. If the local Best Buy is any indication of retail interest in Windows 7, I'd be shorting MSFT.
Good thing that you didn't, Q1 numbers are out. EPS was $0.40 vs street estimate of $0.32. MSFT is up 8% in pre-market.
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Re: Microsoft (Symbol-MSFT) - whereto

Post by Peculiar_Investor »

A very interesting read from an ex-insider, Microsoft’s Creative Destruction. As a current Microsoft share owner, it gives me food for thought about the future growth prospects of the company. The earnings potential and cash flow still remains great, but the lack of innovation is worrisome. I feel that the day is coming that Microsoft may become the first technology "utility" company, slow revenue and earnings growth, with a healthy dividend yield. Who would have thunk it?
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Re: Microsoft (Symbol-MSFT) - whereto

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Re: Microsoft (Symbol-MSFT) - whereto

Post by Peculiar_Investor »

Am I the only one here with an interest in Microsoft as an investment? Maybe a changing of the guard is necessary, FT.com / Comment - Ballmer’s window of opportunity to prove his worth. 2010 was a tough year for the stock and the company, but it has been done before, for example IBM's turnaround of the '90s to today, same name, much different company.
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Re: Microsoft (Symbol-MSFT) - whereto

Post by adrian2 »

Peculiar_Investor wrote:Am I the only one here with an interest in Microsoft as an investment?
I'm short the following MSFT puts (i.e., bullish):
April 2011, strike $25, 4 contracts
April 2011, strike $29, 2 contracts.
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Re: Microsoft (Symbol-MSFT) - whereto

Post by George$ »

adrian2 wrote:
Peculiar_Investor wrote:Am I the only one here with an interest in Microsoft as an investment?
I'm short the following MSFT puts (i.e., bullish):
April 2011, strike $25, 4 contracts
April 2011, strike $29, 2 contracts.
Adrian, you are way ahead of me here. I'm strictly a long and hold type and have little experience beyond that. Thus I don't really understand what you posted.

Can you explain what you did with MSFT above, why, what frictional cost and what your upside gains and downside loses could be?
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Re: Microsoft (Symbol-MSFT) - whereto

Post by newguy »

adrian2 wrote:[I'm short the following MSFT puts (i.e., bullish)
But not bullish enough to be [url=gamma.http://www.investorplace.com/5759/long-gamma-position/]long gamma.[/url]

newguy
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Re: Microsoft (Symbol-MSFT) - whereto

Post by adrian2 »

George$ wrote:
adrian2 wrote:I'm short the following MSFT puts (i.e., bullish):
April 2011, strike $25, 4 contracts
April 2011, strike $29, 2 contracts.
Adrian, you are way ahead of me here. I'm strictly a long and hold type and have little experience beyond that. Thus I don't really understand what you posted.

Can you explain what you did with MSFT above, why, what frictional cost and what your upside gains and downside loses could be?
A put contract (American style) gives the owner the right, but not the obligation, to sell the underlying security at any time up until the expiration data, for the strike price. The call is similar but gives the right to buy.

Market traded options are generally not issued by the company, they are created "out of thin air" by somebody who wants to "write" them. I usually like to be a writer of options, not a buyer.

Stock options are traded in units called a contract. Each contract is for 100 shares.

When you write (i.e., somebody buys an option you offer for sale), you implicitly would get a negative position (the buyer obviously gets a positive number of contracts, the seller a negative one).

The most familiar option position is called "covered call". You own the stock, say MSFT, and decide it's quite high (remember those days?) not sure if it's going higher or just treading water, and want some extra income out of it. You sell (write) a call on it, giving the buyer the option to buy (call) it from you at the strike price, up until the expiration date. This is considered as one of the most conservative positions, because the call option itself won't make you lose money; the only way the option is going to be used if if it's going to be "in the money", i.e., MSFT exceeds the strike price. You're happy you've collected the option premium and content you've sold MSFT for a good price.

Finally, I've come around to my strategy: I'm short (I've written) MSFT puts.

It sounds scarier, but the fundamental theorem of options is one I like to remember using the acronym
British Columbia = Standard & Poor's
B + C = S + P
Bond + Call = Stock + Put

Covered call = Stock - Call
which by the above formula S - C = B - P
which means a cash covered put has the exact risk reward characteristics of a covered call.

In layman's terms:
If MSFT, on the third Friday of April 2011, ends under US$25, I get assigned a total of 6 contracts, meaning I have to buy 400 shares at US$25 and 200 shares at US$29, for a total outlay of $15,800.
If MSFT ends between $25 and $29, I get assigned 200 shares at $29, for an outlay of $5,800.
If MSFT ends above $29, all my MSFT puts expire (go to waste for the holder / buyer).

From this you can immediately see I'm bullish on MSFT: I hope / would like for MSFT to be above $29 in 3 months.
Any potential big drop in MSFT, I'm exposed as much as a holder of 600 MSFT shares.

What I did not mention yet was the initial premium collected by me when I sold the puts. For the $29 ones, it was over $4, while for the $25 ones, at a different moment in time, it was about $3.
So my true break even price for MSFT in April is $25 (= $29 - $4) for the higher price puts, and $22 for the lower price puts.
The most I can make is for options to expire unused, that is to make
$4 x 400 shares = $1600 and
$3 x 200 shares = $600.
Does not sound as much, but remember my exposure to MSFT is only $13,600 (assignment - initial premium collected).

So, as newguy has remarked, I'm not terribly bullish, but bullish enough to risk buying MSFT if it drops below the thresholds, which is kind of a Bylo strategy.

As for frictional costs:
At TDW, with > 50k in household assets, one qualifies for option commissions of $9.99 + $1.25 times number of contracts.
If assigned (forced by the other party to live up to your word and hold our end of the bargain), commission is steeper at $43.

I try not to be assigned; usually if there is enough time to expiry and the option is not too deep in the money, there's enough time value so that it's very unlikely to get an early assignment. If time is running short to expiry and the stock has gone against me (it dropped through the strike price), I'll usually buy my puts back and sell another batch with a lonegr expiry, thus collecting more option premiums.

Feel free to ask for more jargon clarification, I know I've skipped a few unexplained terms but this post is already quite long.
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Re: Microsoft (Symbol-MSFT) - whereto

Post by George$ »

Thanks Adrian. Much appreciated. :)
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Re: Microsoft (Symbol-MSFT) - whereto

Post by deaddog »

Adrian:
How much margin or cash on hand do you have to have?
If Old Softie has a black swan event(very unlikely) and was to drop what kind of balance are you required to have?
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Re: Microsoft (Symbol-MSFT) - whereto

Post by adrian2 »

deaddog wrote:How much margin or cash on hand do you have to have?
If Old Softie has a black swan event(very unlikely) and was to drop what kind of balance are you required to have?
From CBOE's margin calculator
select "Short Put"
CBOE wrote:Initial margin requirement:
100% of option proceeds, plus 20% of underlying security value less out-of-the-money amount, if any
minimum requirement is option proceeds plus 10% of the put’s aggregate exercise price (number of contracts x exercise price x $100)
proceeds received from sale of puts(s) may be applied to the initial margin requirement
after position is established, ongoing maintenance margin requirement applies, and an increase (or decrease) in the margin required is possible
enter, for example (have not checked the up-to-date prices):

# of contracts = 2
strike price = $29
option price = $4
underlying price = $27
Hit Calculate
=> Margin requirement: $1,880.00

# of contracts = 4
strike price = $25
option price = $2
underlying price = $27
Hit Calculate
=> Margin requirement: $2,160.00

so my total margin requirement is currently around $4k (it will be more if MSFT drops and less if it rises).

Or, the quick and dirty:
remember my exposure to MSFT is only $13,600 (assignment - initial premium collected)
MSFT eats up 30% in margin (it provides 70% loan value), so margin ~= 30% x $13,600 ~= $4k
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Re: Microsoft (Symbol-MSFT) - whereto

Post by investing_goon »

What happens when microsoft pays dividends? How does this affect your account and how is the transaction processed?
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Re: Microsoft (Symbol-MSFT) - whereto

Post by adrian2 »

investing_goon wrote:What happens when microsoft pays dividends? How does this affect your account and how is the transaction processed?
An option holder or buyer does not get paid or pays dividends, IOW, no transaction appears in the account.

However:
- current option prices are affected when stocks go ex-dividend;
- any (big enough) special dividends, as well as stock splits result in option strike price adjustments to make the option investors impervious to unforeseen events, other than "usual" stock price movements.

For example, when MSFT paid a special $3 dividend, option strike prices were adjusted by $3 downwards.
If MSFT was to split 2:1, option strike prices would "split" accordingly.
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Re: Microsoft (Symbol-MSFT) - whereto

Post by Peculiar_Investor »

An interesting occurrence today, Microsoft's Q2 earnings were out before the markets closed. Microsoft Release Obtained Early by Market-Data Firm - Bloomberg
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Re: Microsoft (Symbol-MSFT) - whereto

Post by Peculiar_Investor »

Microsoft Agrees to Purchase Skype for $8.5 Billion to Add Internet Calls - Bloomberg. It will be interesting to see how this one evolves, I'm not sure that free call users of Skype, such as myself and my family, will be overly happy with this news, particularly those that run on non-Microsoft OS'es. At least Microsoft has found some use for some of it's cash hoard.

Apparently Canadian's will benefit, CPPIB to collect big windfall as Microsoft buys Skype for $8.5-billion - The Globe and Mail

Seems like the M&A investment bankers and lawyers are getting back to work.

Edit: Added CPPIB story link.
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