Trade #1

Alright folks, let's get this party started. I'm going to start simple with a basic covered call on Microsoft(MSFT). I am currently a bit bearish on the market, so I don't want to get too aggressive. MSFT however, is a stock that absolutely gushes cash. At just over $25/share and yielding 2.49%, I have no problem buying it here and holding long-term. In order to generate a little extra income though, I'm also going to write some short-term calls against this position. Here's what I did:

• Buy 100 shares of MSFT at $25.41: -$2541.00
• Sell 1 May 21 2011 $26.0 Call at $0.07: $7.00
• Total Cost: $2534.00

 I could have sold a call with a longer time frame, but since this is position I'd like to hold long term, I don't want to risk it racing higher and getting called away from me. Instead, I'm going take advantage of the weekly options available for MSFT and try to sell near-the-money calls every week or two. In this case we grabbed a measly 0.275% of income. But if I do that every two weeks it will end up being an additional 7% each year, which added to the 2.5% dividend, comes out to nearly 10% cash yield. That doesn't even account for a growing dividend(something MSFT does regularly) or any capital gains.

Update:

1. On June 9, I received a dividend of $0.16/share for my Microsoft position. I added the $16($0.16x100) to the portfolio cash balance
2. On September 9, I received another dividend of $0.16.
3. On December 9, another dividend was paid. Microsoft raised their dividend 25% so the dividend is now $0.20. I am now receiving a yield of 3.1% on my original purchase price.  My yield is actually slightly more since I'm reinvesting the dividends, but I'm not tracking that for the blog right now.