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Most Active Options Update: Microsoft Corporation (MSFT)

Short-term traders are split on Microsoft Corporation's post-earnings path

by 4/17/2014 1:50 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Microsoft Corporation (NASDAQ:MSFT).


Microsoft Corporation will take its turn in the earning confessional after next Thursday's close. In today's session, it appears a number of speculators from both the put and the call side of the aisle are scooping up weekly options to wager on the equity's post-earnings trajectory.

The most active non-expiring contract in MSFT's options pits today is the weekly 5/2 37-strike put. Nearly all of the 5,036 contracts traded here have done so on the ask side, and implied volatility (IV) has edged higher -- two indications that fresh bearish positions are most likely being initiated. From the stock's current perch at $40.07, it would take a decline of roughly 7.7% for the put to move into the money. What's more, MSFT hasn't traded south of $37 since mid-February. Against this backdrop, delta for the put is docked at negative 0.12, suggesting a slim 12% chance of an in-the-money finish at the close on Friday, May 2.

Meanwhile, more optimistic short-term speculators are targeting MSFT's weekly 4/25 41-strike call. Roughly 2,100 contracts are on the tape here -- 76% at the ask price, hinting at buyer-driven volume. IV was last seen 1.7 percentage points higher, indicating new positions are being established. The volume-weighted average price (VWAP) for the out-of-the-money calls is $0.36, making breakeven at next Friday's close $41.36 (strike plus VWAP). This is just a stone's throw away from the nearly 14-year-high of $41.66 MSFT notched earlier this month.

If recent history is any guide, the stock's post-earnings reaction following MSFT's previous two earnings reports falls in favor of option bulls. Specifically, after MSFT bested analysts' bottom-line estimates in both its fiscal first and second quarter, the stock went on to average a 4% gain in the subsequent session, and 3.6% one week out. For Microsoft Corporation's (NASDAQ:MSFT) fiscal third quarter, Wall Street is expecting a profit of 63 cents -- about 9 cents less than the company's year-ago results.


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