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With August-dated options set to expire later today, Microsoft Corporation (NASDAQ:MSFT) short-term traders are circling next Friday for some quick gains. In particular, the speculators have taken a liking to MSFT's weekly 8/23 33-strike call, where nearly 21,100 contracts have traded so far -- good enough to qualify as the stock's second-most-active option of the day.
Digging deeper, 97% of the contracts crossed the tape at the ask price, suggesting they were purchased. Furthermore, because the session's volume exceeds current open interest levels at the strike, we can infer the calls were bought to open -- a theory that data from the International Securities Exchange (ISE) confirms.
The volume-weighted average price (VWAP) for the weekly calls is $0.15, which means the option bulls will profit should MSFT advance from its current price of $31.83 past the breakeven point of $33.15 (strike price plus VWAP) by next Friday, when the contracts expire. Should the move not come to fruition, the most the traders can lose is the premium paid -- though that appears to be quite a bit, considering the stock's 30-day, at-the-money implied volatility just touched a 52-week high, according to Trade-Alert.
Today's propensity for calls over puts represents the continuation of a trend in Microsoft's options pits. According to data from the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than four calls have been bought to open for every put through the previous two weeks. The resultant 10-day call/put volume ratio of 4.64 stands in the 96th percentile of its annual range, telling us calls have rarely been picked up, relative to puts, with more rapidity.
The recent optimism is surprising, considering Microsoft Corporation (NASDAQ:MSFT) has trailed the broader S&P 500 Index (SPX) by 9-plus percentage points during the past two months. The long-term picture isn't any prettier, either -- the shares are up a meager 3.4% year-over-year. If history repeats itself, a capitulation by the option bulls could spell additional downside for the Windows parent.