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Analyzing Today's Big Microsoft Corporation (MSFT) Options Trade

A massive sweep crossed the tape in Microsoft Corporation's options pits this morning

by 5/27/2014 3:16 PM
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Microsoft Corporation (NASDAQ:MSFT) puts have traded at more than twice the pace of calls today. Short-term contracts are especially in demand, as evidenced by the 6.8% rise (to 15%) in the stock's 30-day at-the-money implied volatility (IV).

By far the most active MSFT option this afternoon is the weekly 6/27 39-strike put, where 17,824 contracts are on the tape. Most of this volume is the result of one individual, who was responsible for a multi-exchange sweep of 17,788 contracts this morning, which traded at the bid price of $0.35 per contract. IV edged higher at the transaction, and volume outstrips open interest, making it safe to assume the puts were sold to open. This theory is supported by Trade-Alert, which speculates the company's appearance at the Cowen Technology, Media & Telecom Conference tomorrow may be increasing interest in MSFT options.

In any event, the MSFT put writer is expecting the shares --currently perched at $39.97 -- to remain above $39 through the close on Friday, June 27, when the weekly options expire. If this happens, he will retain the initial premium collected, or $622,580 ($0.35 premium received * 17,788 contracts * 100 shares per contract). However, risk on the short puts is considerable, as the seller could be assigned if the stock drops below the strike between now and weekly options expiration, roughly one month from today.

Taking a step back, MSFT put sellers have been busy in recent months. During the last 50 sessions on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), in fact, 162,489 contracts have been sold to open -- outstripping the 145,929 bought to open.

The fact that neutral-to-bullish bets have outpaced bearish ones isn't surprising, given Microsoft Corporation's (NASDAQ:MSFT) recent rally. Specifically, since bouncing off of its 160-day moving average in mid-January -- when the shares hit a year-to-date low of $34.63 -- the stock has tacked on over 15%. What's more, MSFT's 80-day moving average, which contained a pullback earlier this month, coincides with the 39 strike -- good news for today's put seller.

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