• The company that has been selected is Microsoft Corporation. It is a U.S.-based
multinational company that specializes in the production of consumer electronics,
computer software, and personal computers, among other offerings.
• An option contract refers to an agreement that entitles the option holder to sell or
purchase the underlying asset on a specific date and at a predetermined price. In the
Microsoft Corporation, the use of options contract is of high strategic importance. The
publicly held company can manage the average maturity relating to its fixed income
portfolio for achieving the intended economic returns that are related to specific broad-
based fixed income indices by using ‘over-the-counter swap and option contracts’ and
‘exchange-traded option and future contracts.’ These contracts are not used as hedging
instruments, and hence they are included in the ‘Other Contracts’ category (Microsoft
Annual Report. Inline XBRL Viewer, 2021, p .74).
• The value of the purchased option contract (termed as other contracts) of Microsoft
Corporation as on June 30, 2022, was $ 2773 million, and the value of the sold option
contract of the company during the same period was $ 544 million (Microsoft Annual
Report. Inline XBRL Viewer, 2021, p. 74). In June 30, 2021, the value of the purchased
option contract of the company was $ 2456 million and the value of the sold option
contract was $ 763 million.
• The value of the option contract (other contracts) of Microsoft has been extracted from its
Annual Statements and presented below:
Source: (Microsoft Annual Report. Inline XBRL Viewer, 2021, p. 74)
• If a retiree from the Microsoft Corporation receives the company stock as a part of his
pension package benefit, it can be strategically used for the purpose of earning extra
money above the normal dividends. It can serve as an equity investment for the investor
that can increase the possibility of gaining high returns. It is essential to make use of the
available stocks in diverse ways so that maximum and optimum returns can be derived
from them. The stock performance in the market must be evaluated so that a better insight
can be got on regarding its trade range. The covered call option can be used to make
additional money over dividends. It refers to a strategy which involves the purchase or
ownership of stock and the selling of calls on a share-for-share basis. By engaging in such
a financial transaction, the investor will get the opportunity to sell call options and own an
equivalent amount of underlying security. By using this method, the retiree will be able to
sell call options on the asset that he holds so that he can have a steady flow of income.
Thus, he will have an opportunity to not only gain dividends from the stocks of Microsoft
Corporation but also have additional income sources that can increase his financial
stability after retirement from the company.
References
Microsoft Annual Report. Inline XBRL Viewer. (2021). Retrieved December 21, 2022, from
https://www.sec.gov/ix?doc=%2FArchives%2Fedgar%2Fdata%2F789019%2F0001564590220268
76%2Fmsft-10k_20220630.htm
