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Microsoft Corporation (NASDAQ:MSFT) is 1.2% higher at $40.81, bringing its year-to-date gain to more than 9%. What's more, options traders are wagering on more upside for the tech titan in the near term, with roughly 52,000 calls already across the tape -- twice the stock's average intraday volume, and nearly three times the number of puts exchanged.
The stock's 30-day at-the-money (ATM) implied volatility (IV) has popped 5.5% higher to 15.1%, pointing to a growing demand for short-term contracts. Echoing that, speculators have taken a shine to the weekly 6/6 and 6/13 41-strike calls, where volume has exceeded open interest, hinting at fresh initiations. What's more, IV is trending higher at both strikes, and nearly all of the calls have changed hands on the ask side, underscoring our suspicions of newly bought bullish positions.
The volume-weighted average price (VWAP) of the 6/6 calls is $0.19, meaning the buyers will reap a reward if MSFT settles north of $41.19 (strike plus VWAP) at the close next Friday, when the options expire. The VWAP of the 6/13 calls -- which have an added week of time value -- is $0.26, making at-expiration breakeven $41.26. Profit potential is theoretically unlimited north of these levels, while risked is capped at the initial premium paid, should MSFT settle south of $41 when the respective options expire.
Despite today's jump in 30-day ATM IV, now is an opportune time to buy MSFT options. The stock's Schaeffer's Volatility Index (SVI) sits at an annual low of 14%, suggesting the equity's short-term contracts are attractively priced at the moment, from a historical perspective.
From a sentiment standpoint, today's appetite for long calls runs counter to the recent trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where MSFT's 10-day put/call volume ratio of 0.79 stands higher than 77% of all other readings from the past year. In simpler terms, option buyers have picked up MSFT puts over calls at a faster-than-usual rate during the past couple of weeks.
That skepticism is echoed in the analyst community. In fact, just nine brokerage firms offer up "buy" or better endorsements for MSFT, compared to 14 "hold" or worse ratings. Plus, the average 12-month price target of $41.60 stands within striking distance of the security's current price.
On the charts, MSFT has been a beast, marking a series of higher highs and lows since lingering near $26.50 in early 2013. Supporting the stock has been its 10-week and 32-week moving averages, the former of which just contained MSFT's most recent pullback.
Off the charts, Microsoft Corporation (NASDAQ:MSFT) is also flexing muscle. The company just announced a deal with Salesforce.com, inc. (NYSE:CRM), and is reportedly working on a smartwatch. (Separately, ex-CEO Steve Ballmer isn't doing too shabby, either, forking over a record-breaking $2 billion for the L.A. Clippers.) Should MSFT continue to thrive fundamentally and technically, a mass exodus of option bears and/or a round of upbeat analyst attention could add fuel to the stock's fire.