A Stock that Acts Like a Bank and a Utility All Rolled into One

I won’t go through the VIX play by play today, because it was pretty straight forward.  The VIX November (and sometime December) future spent a good part of the day underwater, in doing so, showing that the VIX futures were slightly backward.  What does that mean?  Move movement in the short term as 200 point moves in the down start to ignite the realized volatility in the market.  My closet theory is that implied volatility will not drop until after AAPL announces.  I have no real proof for that, but this whole scene feels like last spring when the market was sitting on the big news.  It looks like we are waiting for Friday morning for any meaningful drop in volatility (or another pop), but right now, there is enough movement to support what is going on.

If you are an investor looking for a less volatile place in the market, look at MSFT.  After a year of write offs and slowing growth, MSFT is up marginally, trading around $28.  While the market was collapsing, MSFT was not and, as a matter of fact, closed up on the day.  Clearly, there is zero hype about the new Surface Windows 8 operating system (you see the hype swing in AAPL today?).  That is probably a mistake, as MSFT will make a serious foray into connecting Tablet, PC, and Phones with the Office stuff everyone is used to.  I kind of think of it is the first shot at a Minority Report- type of interface. So I am a SciFi fan.

My hype aside, I like stocks that show strength in a declining market.  Also, the jump in the VIX has pushed MSFT volatility up into the mid-20’s which is pretty high for a company that trades like a utility just after earnings.  The difference is that its still growing revenue pays a nice dividend (like the old time banks), and the name started the year around $27.  I just don’t see that much downside in it.  As for the rest of the market, talk to me at a 15 VIX.

The Trade

Sell a Nov 25/27 put spread tomorrow and let it go out worthless by Nov expiration.

Disclosure:  I have a position in MSFT and VIX.

About Mark Sebastian

Mark Sebastian is a former market maker on both the Chicago Board Options Exchange and the American Stock Exchange. Along with his role directing the path of education for Option Pit, Mark is currently the director of risk for a private hedge fund. He writes a daily blog, the Option Pit blog, formerly Option911. Sebastian has been published nationally on Yahoo Finance, Google finance, Financial Times Alphaville and is a featured contributor for TheStreet.com. He is also published regularly at SFO, the Options Insider, and is one of the Co-Hosts of The Option Block Podcast, a featured Podcast from Options Insider Radio. Mark is the managing editor for Expiring Monthly: The Option Traders Journal. Sebastian has a Bachelor's in Science from Villanova University. To learn more about Option Pit and their mentoring services, please visit: http://www.optionpit.com