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What long-term Microsoft investors can do with short-term volatility
Options 10 minutes to read
Koen Hoorelbeke
Investment and Options Strategist
Résumé: Earnings season often brings sharp swings in share prices - but it can also create quiet opportunities for patient investors. This piece explores how long-term Microsoft holders can use short-term volatility to earn additional income from their existing shares, without taking on extra market risk.
What long-term Microsoft investors can do with short-term volatility
Microsoft (MSFT:xnas) will soon announce its earnings. For long-term investors who already own the stock, this can be an opportunity to collect some extra income without adding risk. One way to do that is through a covered call – a simple options strategy that earns you money when the market stays calm or moves only slightly higher.
What is a covered call?
Imagine you own 100 Microsoft shares. A covered call means you agree to sell those shares at a set price (called the strike price) within a certain time frame (called the expiry date). In exchange, you receive cash up front, known as the option premium.
If the share price stays below that strike by expiry, you keep both your shares and the premium. If the share price goes above the strike, you may have to sell your shares at that strike price. You still keep the premium you received, but you give up any further upside beyond the agreed level.
This strategy is called covered because you already own the shares. It’s considered conservative compared to other options strategies since you’re not borrowing or taking extra risk.
Why this week could be interesting
Before companies announce their earnings, the price of their options often rises. This happens because investors expect bigger price moves and are willing to pay more for protection or speculation. The amount of movement the market expects can be estimated from option prices – this is called the expected move.
Right now, the options market expects Microsoft’s share price to move up or down by about USD 25 over the coming week. In simple terms, traders think there’s a good chance the stock will end up somewhere between roughly USD 500 and USD 550 by the end of the week.
Choosing a strike near the upper end of that range can make sense for a covered call. In this case, the USD 550 strike stands out. It’s a level that many traders are watching because there are a lot of open contracts (called open interest) at that price. When open interest is high, prices often slow down or hover near those levels as option positions are adjusted before expiry.
Important note: The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
Example trade step by step
- Microsoft share price: USD 524.23
- Action: Sell one call option (the right for someone else to buy your 100 shares) at a strike of USD 550 expiring this Friday, 31 October 2025.
- Premium received: about USD 4.20 per share (USD 420 total for 100 shares).
If you already own 100 shares, you receive USD 420 today for agreeing to sell them at USD 550 later this week. You keep this money no matter what happens next.
The total value of your 100 shares is about USD 52,423. Earning USD 420 in one week represents about 0.8% of that amount. That may sound small, but it adds up if you repeat this kind of trade several times per year.
If Microsoft rises above USD 550 and your shares are sold, you would receive USD 550 per share plus the USD 4.20 premium, for an effective selling price of USD 554.20. From the current level, that’s a potential gain of about 5.7% for the week.
What could happen by expiry
| If Microsoft... | What happens | What it means for you |
|---|---|---|
| Stays below USD 550 | The option expires worthless | You keep your shares and the USD 420 premium. |
| Moves near USD 550 | The option may be exercised | You might sell your shares at 550 and keep the premium. |
| Goes well above USD 550 | The option will almost certainly be exercised | You sell at 550, miss further upside, but keep the premium. |
So, if the price moves only a little or not at all, you earn money. If it jumps higher, you still make a nice return up to the 550 level but give up any gains beyond that.
Managing your position
Once the trade is open, here are three simple ways to handle it:
- Let it expire: If Microsoft stays below 550, the option expires, and you keep both your shares and the premium.
- If assigned (sold at 550): You sell your shares at 550 and can later sell a cash-secured put (another conservative option strategy) to try to buy them back at a lower price.
- Roll the option: If the stock hovers near 550, you can buy back the option before expiry and sell another one for the next week or a higher strike. This lets you continue collecting premiums while keeping your shares.
Risks and what to keep in mind
- The main trade-off is that your upside is limited. If Microsoft jumps far above 550, you won’t benefit beyond that level.
- There’s a small chance your shares get called away early, especially if the option moves deep into profit.
- Expected moves are estimates based on option prices—real moves can be much larger.
- Taxes, transaction costs, and timing can affect results.
FAQ
1. What if I don’t own 100 shares?
You can’t sell a standard covered call without owning at least 100 shares. Each option contract represents 100 shares. However, you can still follow the idea by watching how premiums change or by trading a smaller-sized product like a mini contract (if available).
2. Can I lose money with a covered call?
Yes, if the stock price falls, your shares can lose value. The option premium you collect provides a small cushion, but it doesn’t protect you from a large drop.
3. Why not choose a lower strike?
A lower strike gives you more premium but increases the chance that your shares will be sold. Choosing a higher strike gives you less income but more room for price gains.
4. What happens if the stock soars far above my strike?
You’ll sell your shares at the strike price and miss out on further gains. But remember, you entered the trade knowing that was part of the deal—you traded unlimited upside for a guaranteed premium.
The takeaway
Selling a short-term covered call on Microsoft at the 550 strike lets long-term investors earn around 0.8% in a week while still participating in moderate upside. It’s a steady, conservative approach that uses the market’s short-term excitement around earnings to your advantage. Even if the stock goes nowhere, you still collect the premium—turning market calm into a small but reliable source of extra income.
This content is marketing material and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.
The Author is permitted to wait at least 24 hours from the time of the publication before they trade the instruments themselves.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options.
This content will not be changed or subject to review after publication.
The Author is permitted to wait at least 24 hours from the time of the publication before they trade the instruments themselves.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options.
This content will not be changed or subject to review after publication.
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