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Most Active Options Update: Microsoft Corporation (MSFT)

Option players have turned a blind eye to Microsoft Corporation's upward trajectory

by 6/4/2014 2:22 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).


Since taking a quick bounce off its 120-day moving average in mid-January, Microsoft Corporation has been blazing a path steadily higher. In fact, since hitting a year-to-date intraday low of $34.63 on Jan. 14, the stock has rallied more than 16% to its present perch at $40.27 -- thanks to a helping hand from its rising 60-day moving average.

In recent weeks, though, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been scooping up long puts, relative to long calls, at a slightly faster-than-usual clip. Specifically, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.63 ranks in the bearishly skewed 59th percentile of its annual range.

In today's session, it's more of the same, with put volume running at an above-average rate. Although the $40 mark -- which coincides with the aforementioned 60-day moving average -- has provided support in recent weeks, short-term speculators are betting on a move south of here in the near term.

The two most active MSFT puts this afternoon are the weekly 6/6 40 strike and weekly 6/13 39.50 strike, where a collective 13,018 contracts have changed hands. The majority of these puts have traded at the ask price, implied volatility is higher at each strike, and volume outstrips open interest -- all indications of buy-to-open activity.

Coincidentally, the volume-weighted average price (VWAP) for both strikes is $0.24. What this means is that those buying the higher-strike puts will profit on a close south of $39.76 (strike less VWAP) on Friday, below which gains will accrue on a move all the way down to zero. Breakeven for the lower-strike puts at next Friday's close is $39.26 (strike less VWAP). Risk for both sets of put buyers is limited to 100% of the premium paid, should MSFT finish north of the strike prices at the respective expirations.

Fundamentally speaking, Apple Inc. (NASDAQ:AAPL) announced at its Worldwide Developers Conference yesterday that MSFT's Bing will be the featured search engine for its Mac OS X. Separately, two of China's state-owned media outlets are targeting Microsoft Corporation (NASDAQ:MSFT) -- along with AAPL and Google Inc (NASDAQ:GOOGL) -- for their supposed role in the PRISM scandal.

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