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Option Brief: Microsoft Corporation (NASDAQ:MSFT) is pointed higher ahead of the bell, with the shares looking to add to their year-to-date gain of 6.9%. The blue chip has spent 2014 blazing a trail of higher highs and lows, with its ascending 40-day moving average emerging as support. However, one options trader is either rolling the dice on a significant pullback, or is hedging his bets to be safe.
In Thursday's session, roughly 37,000 MSFT puts changed hands, compared to around 33,000 calls. Most active by a mile was the June 38 put, where close to 6,400 contracts traded -- including a block of 3,719 that crossed at the ask price of $0.45 apiece. Open interest at the strike soared overnight, underscoring our suspicions of newly bought positions.
If the speculator is a "vanilla" option bear, his goal is for MSFT to be sitting south of breakeven at $37.55 (strike minus premium paid) at the close on Friday, June 20, when back-month options expire. From the stock's current perch at $40, it would take a retreat of 6.1% in order to perforate breakeven -- which sits in territory not charted since March 14. Delta on the puts stands at negative 0.25, implying a roughly 1-in-4 shot of an in-the-money finish at expiration.
If the speculator is a MSFT shareholder, his goal remains for the stock to extend its long-term ascent. The puts merely lock in an acceptable price ($38) at which to sell his shares, should the equity take a turn for the worse over the next few weeks. Whatever the motive, risk is limited to the initial premium paid for the puts, should MSFT remain north of $38 through the option's lifetime.
As alluded to earlier, Microsoft Corporation (NASDAQ:MSFT) has been stellar on the charts, outperforming the broader S&P 500 Index (SPX) by more than 5 percentage points during the past two months. Off the charts, the company is attempting to rectify a bug detected in its Internet Explorer browser, and is expected to announce details for its first U.S. innovation center today.