MSFT bull put spread: credit, risk, strikes

You are still selling downside — just not all of it. The long $430 put cuts the tail off below that level, which is why this needs $1,510 of buying power instead of the $45,000 a cash-secured put would tie up.

Above $450 at August 28, 2026, both puts expire worthless and you keep the full $490. Below $430, you lose the maximum $1,510. Breakeven is $445.1.

Return on risk is 32% for 27 days — 439% annualized. That headline is the reason people prefer spreads to cash-secured puts, and the reason spreads blow up accounts: the same capital supports several times the notional risk.

Between the strikes the loss scales linearly, so most of the damage happens fast when MSFT breaks $450. There is no assignment-and-hold escape hatch: the long put you own expires the same day.

Early assignment on the short leg leaves you long 100 shares plus a long put — a synthetic call, not a disaster, but a position you did not choose and one that requires $45,000 of cash on Monday.

The structural problem with short premium is not the loss rate, it is the loss SIZE. A long run of small wins funded by an occasional large loss looks like skill on a monthly statement and like variance on a five-year one.

Microsoft is what a premium seller's underlying is supposed to look like: implied vol that sits a couple of points above realized between prints, a share price high enough that one contract is a meaningful position, and a dividend small enough that early assignment is a calendar check rather than a constant threat. The yields are unglamorous. They are also the ones that survive a decade.

MSFT's Aug 28 strikes are $5 apart near the money (1.08% of spot). That is workable, but it means a one-rung move in a strike is a real change in the trade, not a tweak. 32k contracts of open interest on Aug 28 is workable around the money and thin in the wings — width costs more here than the ladder suggests. 25 strikes on that expiry — 35% of the board — carry prints that agree with their own implied volatility and hold up across the ladder, and those are the strikes priced here. Tight at every listed strike; round-number strikes carry the open interest and the best fills.

Skew is inverted: the 25-delta CALL implies 1.8% more vol than the put. That is the market pricing upside risk above downside risk — a squeeze, a takeover rumour, or a crowded short. Selling calls into an inverted skew pays better than usual and is riskier than usual for exactly the same reason. The term structure is flat inside 1.5% between the two captured expiries, so there is no calendar edge to harvest and no event visibly priced into one month over the other.

At 31% ATM implied vol, the Aug 28 options are pricing a one-standard-deviation move of $38.59 over 27 days — roughly −8.3% to +8.3%, or $426.13 to $503.31. Everything the bull put spread above collects is rent on that range. If MSFT routinely covers 8.3% in 27 days, the credit is fair compensation rather than edge.

What actually goes wrong here, as opposed to in general: Assuming a quiet chart means quiet options. Microsoft's earnings gaps have repeatedly cleared the implied move while the between-print tape stayed asleep.