Microsoft, a stock that is worth holding and trading

On Jan 12, i had the following action:

Background:

Between now and 4/15 tax due day, i have extra $250k sitting there and doing nothing. Bank yield is less than 0.3%. Almost like nothing. So, i decide to put my free cash into work and earn some profit while expose to minimal risk.

Microsoft is a company that i follow closely. (i am holding big % in my portfolio) It is currently undervalue. Stock price 5 year fair value is over $35. Yesterday, it trade at $28~. So, i am comfortable to hold this company for long term if my cost is anything below $30.

Again, remember my objective? I want minimum risk exposure. I want short term, might need the $ to pay personal tax.

So, in the near term, anything can happen. Even a company thats fair value is over $35 that is trading at $28. It is possible for that company to go below $28, $27 or $26 in the near term. Anything crazy can happen (i never worry if it goes other direction, which is up)

My Action:

Yesterday, i bought 8,000 shares of MSFT for $28.23. Today, i sold covered CALL (2/19/2011 $27) and receive $1.88 per share.

Translation:

Yesterday, I pay $28.23x8000=$225,840 for my Microsoft shares.

The covered call i sold, i received $1.88x8000=15,040. That money is in my pocket today!

By 2/19, if stock price is above strike price of $27, my stock will be taken away from me for $27 per share. Even stock price at that day is $35 or higher, it is none of my business. they still pay me $27 per share.

If So, you do the math, by 2/19, i will receiving:

$27x8,000 = $216,000

I also got to keep the dividend issued on 2/15

$0.16x8000 = $1280

Plus the initial $15,040 that i pocked today. My total will become 216000+1280+15040 = 232,320

That means a profit of $6,480 (minus some brokerage fee) That means 2.87% return on my investment of 225,840 in 40 calender days. That also means 26% annualized return

Conclusion:

Will i success? Time will tell. I believe the chance is very high. Can i fail? absolutely. If i fail, that means stock price by 2/19 is trading below $27. That also means no one will buy it from me for $27/share. So, i got to keep that 8,000 shares. My cost for those shares will be $28.23 - 1.88 -0.16 = 26.19. So, i will be stuck with the stock, which i am happy to pay any price under $30 (fair value over $35) Assume my fair value is correct, the stock that cost me $26.19 will eventually move above that. And my risk is minimal.

I will update you 40 days from today. Will share result with you.

Result:  Success