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Microsoft Corporation (MSFT) Lures In Option Bears

Microsoft Corporation's weekly 6/27 38-strike put garnered notable attention on Monday

by 6/3/2014 9:46 AM
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Option Brief: Microsoft Corporation (NASDAQ:MSFT) finished Monday slightly in the red, at $40.79. In spite of this unspectacular price movement, short-term contracts garnered plenty of attention. Specifically, the stock's 30-day at-the-money implied volatility (IV) rose 1.3% to 14.9%, indicating elevated demand for front-month MSFT options.

By the closing bell, one of the software name's most popular options was the weekly 6/27 38-strike put, where 8,000 contracts changed hands. What's more, IV at the strike edged higher, open interest tacked on 7,925 contracts overnight (by far the most of any strike), and data from the International Securities Exchange (ISE) confirms a portion of the activity was of the buy-to-open variety. Per Trade-Alert, the volume-weighted average price (VWAP) for the trades was $0.08.

As such, yesterday's put buyers are looking for MSFT to be perched below $37.92 (strike less VWAP) by the close on Friday, June 27, when the weekly contracts expire. Additional gains will accrue the closer the underlying gets to zero. However, if the shares remain above the strike price through the option's lifetime, the traders risk parting with the initial premium paid. Fortunately, current premium appears to be fairly modest, based on MSFT's Schaeffer's Volatility Index (SVI) of 14% -- which ranks lower than 98% of comparable readings, looking back one year.

On the charts, Microsoft Corporation (NASDAQ:MSFT) has put up a respectable showing, gaining 9% year-to-date atop support from its 80- and 120-day moving averages -- both of which are resting above the 38 strike. If the shares continue to rise steadily, an unwinding of the aforementioned puts (and other out-of-the-money contracts) could provide MSFT with tailwinds.

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