Traders Rush for Microsoft Call Options

Airlines SAVE and ALGT should be in focus, too, as the sector struggles with higher oil prices

Apr 23, 2019 at 12:45 PM
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Microsoft Corporation (NASDAQ:MSFT) just hit an all-time high of $125.25 ahead of its post-close earnings release tomorrow, April 24, extending its year-to-date gain to roughly 23%. We noted earlier this month that bullish options traders were getting behind the stock, and that trend has continued, with MSFT's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 3.12 docked in the 100th annual percentile.

Meanwhile, Schaeffer's Senior Quantitative Analyst Rocky White ran a study for names trading near 52-week highs that also have low Schaeffer's Volatility Index (SVI) rankings. Microsoft landed on the list, with its SVI of 23% landing in just the 22nd annual percentile. The stock gained 2.13%, on average, in the month following the previous five occasions where this signal flashed.

Overall, the options market is pricing in a 5% post-earnings swing for the shares, double the average next-day move from the past two years. Last quarter, MSFT dipped 1.8% after earnings, but rallied 5.8% the day after reporting back in October.

Two other names to watch on the earnings schedule this week are Spirit Airlines Incorporated (NYSE:SAVE) and Allegiant Travel Company (NASDAQ:ALGT). The airline sector has been under pressure lately thanks to surging oil prices. Right now, the options market is pricing in similar post-earnings moves for both SAVE and ALGT, at 7.8% and 7%, respectively. Both companies report after the close tomorrow.

Spirit has been the much better performer on the charts, sporting a one-year gain of over 46%, while ALGT shares are down almost 7% during the same period. Analyst sentiment is generally bullish on both names, especially SAVE, which, out of 13 covering brokerages, has only two with anything less than a "strong buy" rating. Meanwhile, 61% of analysts following ALGT maintain a "strong buy" recommendation.


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