3 Red-Hot Stocks with In-Demand Options

MSFT hit a record high earlier today

Oct 28, 2019 at 1:15 PM
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The S&P 500 Index (SPX) is fresh off a record intraday peak, fueled by a big day for luxury retailer Tiffany (TIF). Among other names making notable moves are Dow stock Microsoft Corporation (NASDAQ:MSFT), streaming issue Roku Inc (NASDAQ:ROKU), and child care provider Care.com Inc (NYSE:CRCM). Here's a quick roundup of what's moving the shares of MSFT, ROKU, and CRCM.

Microsoft Hits New High After Pentagon Contract

Microsoft stock hit a record high of $145.67 earlier, last seen up 2.1% at $143.63. The upside comes after the tech giant was awarded a $10 billion cloud computing contract by the Pentagon -- beating out Amazon (AMZN). A round of bull notes is strengthening tailwinds, too, with price-target hikes coming through at Mizuho (to $160) and Independent Research (to $150).

Microsoft stock has already had a tremendous run, up 41.% year-to-date -- second only to Apple (AAPL) in terms of best Dow stock of 2019. Options traders have been betting on bigger gains, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MSFT's 10-day call/put volume ratio of 2.42 ranks in the 83rd annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

Today, options traders appear to be buying to open the weekly 11/1 145-strike call, where more than 27,500 contracts have changed hands. The volume-weighted average price (VWAP) on these weekly calls was last seen at $1.09, which makes breakeven for the call buyers $146.09 (strike plus premium paid).

BofA-Merrill Lynch Thinks Roku Stock's a Buy

BofA-Merrill Lynch initiated coverage on Roku stock with a "buy" rating and a $154 price target -- a 15% premium to last Friday's close. The brokerage firm said Roku should benefit from rising competition in the streaming space, and called the stock's sell-off in reaction to new streaming options from Comcast (CMCSA) and Facebook (FB) "excessively punitive."

More specifically, ROKU shares fell more than 44% from its Sept. 9 record high of $176.55 to its Sept. 27 low at $98.08. The equity has since retraced more than 50% of this sell-off, and thanks to today's 8.2% pop to trade at $144.74, is now poised for its highest close since Sept. 17.

Bulls are eyeing even bigger gains through week's end. The weekly 11/1 options series is running hot, and buy-to-open activity is detected at the 140-, 145-, 150-, and 160-strike calls. In fact, almost 30,000 contracts have collectively crossed here, or 34% of today's intraday call volume.

Care.com Climbs Big Board on Buyout Buzz

Care.com is trading near the top of the New York Stock Exchange (NYSE) today, after a Bloomberg report suggested the online caregiver marketplace is reviewing strategic options, including a potential sale. At last check, CRCM stock is up 9.2% to trade at $12.21.

The shares are still down more than 36% year-to-date, and today's upside is being contained by CRCM's 160-day moving average. Plus, the equity has yet to fill a late-June bear gap that was sparked by a C-suite shake-up.

Speculative players are flooding into Care.com's typically quiet options pits, with nearly 2,000 contracts on the tape so far -- 37 times what's typically seen at this point. The December 15 call is most active, and all signs suggest new positions are being purchased here for a VWAP of $0.36, making breakeven for the premium buyers $15.36.


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