I bought some more MSFT as I’d said I wa…

I bought some more MSFT as I’d said I wanted to this morning.  I used the January 2012 MSFT calls with a $22.50 strike.   I got ’em for just over a $3 each, which means that MSFT has to get over $25.60 or only 80 cents from here to put these in the money.   The premium on MSFT options, especially, the call options, are extremely cheap and by using slightly in the money calls, I essentially just used 1/10th the capital required to control an equivalent number of common stock shares of MSFT and I only paid about 3% more ($25.60) to control those shares using the leverage in these options than I would have buying the common stock in the open market at $24.80.   We could lose 100% of our capital in these calls if MSFT falls below $22.50 between now and next January, but the good news is that we have a natural stop loss built in at that level and, again, we only exposed 10% as much capital as we would have buying the MSFT common here…which means we’re capped at a 10% loss on the MSFT position, in some sense, if you think about it.

But let me finish by being explicitly repeating — you can lose 100% of the capital you risk on MSFT calls if the stock is below the strike price when they expire.