Trading MSFT Options

When I looked at the MSFT daily (above) this weekend I thought that it looked like it might be a good short if I was inclined. But I wouldn't be inclined to short MSFT for no other reason than it moves too slow. Of course you could trade it on the margin but I don't think you would be able to justify the interest. So, naturally I took a look at the options as they provide the most possible trading leverage.

It turned out that MSFT options looked like they might be great to trade with very low implied volatility and super small spreads. Almost every Feb and March option has a spread of .02 or less which means you don't have to take a big loss on the initial purchase and makes exiting comfortable and easy. I particularly like the March 30 puts and calls because MSFT has a major pivot price there from previous resistance and now its 50 dma at 35.03. I would expect MSFT to bounce off 30 before eventually breaking it but you just have to wait and see. On any break below 30 you can expect the premiums to rise with volatility (also thought of as "fear") As news becomes available on the success or failure of Vista the implied volatility can be expected to rise from historically lower levels especially if MSFT closes below major support at 30$. I definitely have a bearish feeling about Vista and MSFT in general near these highs, but I won't get all that excited until it breaks 30$. Even after it does, both the puts and calls should be great for intraday moves. Here's a look at the implied volatility on MSFT over the last year:
A brief word of caution, options are the easiest way to lose money in the market as the large majority of them expire worthless. Furthermore, I would expect the MSFT Feb 30 Puts and Calls to expire worthless as there is so much interest in them and maxpain currently lies at 30$. So trade them, but DO NOT HOLD THEM TILL EXPIRATION. I may try again later after the superbowl to complete this post, until then enjoy the game!

Update: Tues Feb 6th: Well MSFT didn't waste anytime breaking 30, in fact it opened below 30 on monday and was unable to retrive the 50 day moving average. While this is definately very bearish the stock has been falling much faster than it typically moves and so i would try playing bounces back towards 30 more so than further downside. I definately wouldn't expect it to close below its lower BB, currently at 29.52 but falling fast. As far as the options, they have been great. I was able to get +.07 on .54 with the March 30 calls yest and +.20 on .68 with the Feb 30 puts today. If your broker enables you to place option orders in .01 increments you need to check these things out, i haven't seen any other options like these. And the bid/offer sizes are huge, as high as 3k.