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Most Active Options Update: Microsoft Corporation (MSFT)

Bullish MSFT options trader constructs a three-legged spread

by 8/30/2013 2:20 PM
Stocks quoted in this article:

The 20 stocks in the table below have attracted the highest options volume -- in the front three-months' series -- during the past 10 trading days. The companies highlighted are those that are new to the list since the last time the study was run. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Three names of notable interest this afternoon are Microsoft Corporation (NASDAQ:MSFT) , Bank of America Corp (NYSE:BAC) , and J.C. Penney Company, Inc. (NYSE:JCP) .

With its shares set to go ex-dividend on Wednesday, Bank of America Corp has seen speculators flood its options pits on the put side. Specifically, large blocks of the May 2014 13-strike and January 2014 13-strike puts have traded off their respective bid prices, and were each tied to stock. Meanwhile, as J.C. Penney Company, Inc. plumbs a new multi-year low of $12.12, option traders are selling to close their September 11 puts, perhaps taking profits off the table. Finally, here is a quick look at one interesting trade that crossed the tape on Microsoft Corporation.

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Last Friday -- following the surprise announcement of CEO Steve Ballmer's retirement-- Microsoft gapped to a one-month high of $35.20 (partially filling in its earnings-related bear gap from July 19. These gains were short-lived, however, and the stock is now perched at $33.40.

One bullish options trader isn't giving up on the software giant, however, which is reportedly looking to expand its reach into the social media world. Earlier today, three blocks of 5,000 contracts simultaneously changed hands, and Trade-Alert indicates the speculator sold out-of-the-money puts in order to finance the purchase of an out-of-the-money long call spread. Specifically, he sold the January 2015 25-strike puts for $1.23 each, then sold the January 2015 45-strike calls for $0.57 each while also buying 5,000 of the January 2015 40-strike calls for $1.25 apiece. By the time the dust settled, he had collected a net credit of $0.55 for each three-legged spread, which is a bet on long-term upside in MSFT.

Similar to a regular bull call spread, this position will reach its maximum profit of $5.55 (the difference in call strikes, plus the net credit collected in this case) if Microsoft is trading at or above $45 when these options expire in January 2015. Between the $25 and $40 strikes, meanwhile, gains are capped at the modest premium collected. But because of the short put, losses are unlimited down to the zero mark once the stock breaches the $24.45 breakeven level.

Microsoft Corporation (NASDAQ:MSFT) has not traded north of $40 since mid-2000, and last moved below $25 in October 2011.


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