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Put Sellers See Limited Downside for Microsoft Corporation (MSFT)

Microsoft Corporation's March 36 puts are popular today

by 2/18/2014 10:58 AM
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Microsoft Corporation (NASDAQ:MSFT) is 0.6% higher this morning at $37.55, following the announcement of a wide-ranging update to the MSFT Dynamics CRM system. In the options pits, this development has been met with confidence, as one trader set a short-term floor for the shares.

Digging deeper, a single individual executed a multi-exchange sweep of 20,000 March 36 puts, just after the opening bell today. The simultaneous trades occurred at the bid price, suggesting the contracts were sold. Meanwhile, open interest ticked higher at the transactions, volume outstrips open interest at the strike, and data from the International Securities Exchange (ISE) confirms some of the sell-to-open activity.

By writing the puts to open, this morning's big trader expects MSFT to maintain its perch atop the 36 strike through the closing bell on Friday, March 21, when the back-month options expire. If the shares comply, then the options will expire worthless and the put seller will retain the initial premium received as his maximum potential profit. However, if the stock plunges below the strike, the trader could be assigned, and forced to buy the shares at $36 apiece, no matter how far they've fallen.

Taking a step back, Microsoft Corporation (NASDAQ:MSFT) puts are the options of choice today, easily outnumbering calls -- 26,000 contracts to 11,000, to be specific. This is not particularly unusual. The software maker's Schaeffer's put/call open interest ratio (SOIR) of 0.97 ranks in the 86th percentile of its annual range, meaning short-term traders have shown an above-average preference for puts, relatively speaking.


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