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Microsoft Corporation (MSFT) Option Bulls Target a 14-Year Peak

Microsoft Corporation's November 48 call was bought to open yesterday

by 8/14/2014 9:29 AM
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Option bulls have been circling Microsoft Corporation (NASDAQ:MSFT) in recent weeks, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock's 10-day call/put volume ratio of 2.42 ranks in the 83rd percentile of its annual range, meaning calls have been bought to open over puts at an accelerated clip.

This call-skewed bias was witnessed in Wednesday's session, with calls outpacing puts by a more than 2-to-1 margin. The most sought-after option was MSFT's November 48 call, where 18,131 contracts changed hands -- a healthy portion at the ask price, signaling buyer-driven activity. What's more, open interest rose the most of any strike overnight, making it safe to assume a fresh batch of bullish bets was initiated.

Based on the volume-weighted average price (VWAP) of $0.47, at-expiration breakeven for yesterday's call buyers is $48.47 (strike plus VWAP) -- territory not charted by the stock since March 2000. Profit will accrue with each additional step north of here, while losses are capped at the premium paid, should MSFT be sitting south of $48 at the close on Friday, Nov. 21, when the options expire.

On the charts, Microsoft has been moving its way steadily north since February -- thanks to a lift from its rising 50-day moving average -- and notching a series of higher highs along the way. In fact, the equity tagged a 14-year peak of $45.71 on July 17. More recently, Microsoft Corporation (NASDAQ:MSFT) closed Wednesday's session at $44.08, an area that coincides with a hefty accumulation of put open interest in the front-month series of options. This level could provide a foothold for the shares for the remainder of this week, as the hedges related to these bets unwind ahead of tomorrow night's options expiration.


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