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Option Brief: Microsoft Corporation (NASDAQ:MSFT) is in the green at $41.57 this morning, and earlier came within a chip-shot of notching a fresh multi-year peak. Specifically, the stock hit the $41.60 mark -- just pennies shy of its early April 14-year peak of $41.66. Against this backdrop, call volume has soared to two times the intraday average, and per the stock's rising 30-day at-the-money implied volatility (IV), short-term options are in high demand. Specifically, the June 41.50 and weekly 6/27 42-strike calls are the most active MSFT options, and it looks like a number of speculators are betting on the stock to notch a new multi-year peak within the next two weeks.
The most sought-after option is once again the June 41.50 call, where 9,759 contracts have changed hands. A healthy portion of these have gone off on the ask side, IV is up 3.7 percentage points, and data from the International Securities Exchange (ISE) confirms some buy-to-open activity. The volume-weighted average price (VWAP) for the calls is $0.33, making breakeven at this Friday's close -- when front-month options expire -- $41.83, or the strike plus the VWAP. Gains will accrue with each step north of here MSFT settles, while risk is limited to the initial cash outlay, should the security close south of the strike on Friday.
Longer-term, yet more slightly more optimistic, option bulls are targeting the weekly 6/27 42-strike call, where 5,464 contracts are on the tape. Nearly all of these calls have crossed at the ask price, IV is 1.8 percentage points higher, and only 993 contracts make up open interest here. Summing it all up, it seems safe to assume new positions are being purchased. Based on the VWAP of $0.24 for these calls, at-expiration breakeven for the option traders is $42.24, while losses are also limited to the 100% of the premium paid, if Microsoft Corporation (NASDAQ:MSFT) finishes south of $42 at next Friday's close.