Why Microsoft Corporation (MSFT) Could Burn Option Bears

Microsoft Corporation's (MSFT) successful test of its 160-day moving average may be a sign of good things to come

by Alex Eppstein

Published on Feb 25, 2016 at 2:06 PM
Updated on Jun 24, 2020 at 10:16 AM

Negativity is running high in Microsoft Corporation's (NASDAQ:MSFT) options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the tech stock has racked up a 10-day put/call volume ratio of 1.05 -- outstripping 94% of all others from the past year. In other words, option traders have been placing bearish bets over bullish at a rapid-fire rate in recent weeks.

Case in point, MSFT's March 52.50 put has seen the biggest change in open interest during the last 10 trading days, adding nearly 44,000 contracts. Based on ISE, CBOE, and PHLX data, the lion's share of these options were bought to open, suggesting speculators foresee downside through front-month expiration, at the close on Friday, March 18.

However, from what we're seeing on the charts, these doubters may want to think twice about betting against MSFT. The stock took a bounce off its 160-day moving average earlier this month, and historically, this has been a bullish indicator. Specifically, the last five times the shares have touched this trendline during the previous three years, they've been positive 100% of the time in the ensuing five sessions -- yielding a typical return of 2.6%. Going out to 21 days, the average return jumps to 3.3%, with 71% positive.

160225msft

Today, Microsoft Corporation (NASDAQ:MSFT) is up 0.3% at $51.49, and a continuation of this recent uptrend could send option bears to the hills -- which could translate into more buying power. Meanwhile, analysts are already in MSFT's bullish corner, with 75% doling out "buy" or better ratings.

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