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Mike Khouw's Microsoft Trade, Going Into Earnings

On CNBC’s “Options Action,” Mike Khouw suggested investors with a long stock position in Microsoft Corporation (NASDAQ: MSFT) should consider a covered call options strategy ahead of earnings. The earnings results are scheduled for Tuesday, after market close.

Khouw wants to own Microsoft for the long term and he thinks it is a good idea to sell calls against a long stock position to improve returns. Specifically, he wants to sell the March $245 call for $4.30. The premium is around 1.9% of the underlying price and the stock is also going to pay a dividend until March, which increases the return for the period to around 2.1%. When these calls expire, he is going to repeat the same process.

Wedbush today raised its target on Microsoft.

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