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Despite the revelation of a security gap in its Internet Explorer browser, Microsoft Corporation (NASDAQ:MSFT) added 2.4% yesterday to close at $40.87. Meanwhile, in the software maker's options pits, calls traded at a 54% mark-up to the average daily volume, with 127,000 crossing the tape -- easily outstripping the 48,000 puts that changed hands.
One of the most active options was MSFT's weekly 5/2 42-strike call, where nearly 8,800 contracts traded -- the majority at the ask price, hinting at buyer-driven activity. What's more, implied volatility rose 3 percentage points at the strike, and open interest expanded by several thousand positions overnight, conveying the initiation of fresh bullish bets.
By buying the calls to open, the traders expect MSFT shares to rally past the 42 strike by the closing bell this Friday, when the weekly options expire. Should that occur, it would represent a new 14-year high for the stock. However, if the equity remains below the strike through week's end, the call buyers will forfeit just the initial premium paid.
Yesterday's bullish options bettors stand in contrast to the bears on Wall Street. Despite the shares tacking on more than 9% year-to-date and 25% year-over-year, just 10 analysts give them a "buy" or better rating, versus a total of 15 "hold" and "sell" recommendations. If Microsoft Corporation (NASDAQ:MSFT) continues to climb the charts, a series of upgrades may ensue, which could give the shares an added boost.