Most Active Weekly Options: Microsoft Corp (MSFT)

Option skeptics disregard Microsoft Corporation's historical post-earnings price action

Oct 23, 2014 at 1:40 PM
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The 20 stocks listed in the table below are the S&P 500 Index (SPX) components that have attracted the highest weekly options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is Microsoft Corporation (NASDAQ:MSFT), as traders up the bearish ante ahead of the company's after-the-close quarterly earnings report.

Most Active Weekly Options Table

As noted, Microsoft Corporation will follow in the footsteps of a number of its fellow Dow components when it steps into the earnings confessional after tonight's close. Traders are flooding the stock's options pits ahead of the results, but -- despite MSFT averaging a single-session post-earnings gain of 2.1% over the past four quarters -- many are betting on some earnings-induced turbulence through week's end.

Taking a quick step back, overall volume is running at two times the average intraday pace, with puts having a roughly 8,000-contract lead over calls. Two of MSFT's five most active options expire at Friday's close, with the equity's 10/24 46.50-strike call seeing the most action out of this duo. However, the majority of these calls went off at the bid price, implied volatility (IV) has soared 22.1 percentage points, and volume outstrips open interest, pointing to sell-to-open activity. By writing the calls, traders expect MSFT to stay south of the $46.50 through tomorrow's close, when the series expires.

Elsewhere, MSFT'S weekly 10/24 44.50-strike put has received notable attention, with 6,289 contracts on the tape at last check. A large portion of these puts traded at the ask price, IV is up 22.4 percentage points, and volume exceeds current levels of open interest. Summing it all up, it seems new positions are being purchased. Delta on the put is docked at negative 0.41, suggesting a roughly 2-in-5 chance the option will be in the money at expiration.

Today's skeptical stance among option traders is just more of the same for a stock that's up roughly 20% year-to-date to trade at $44.88. In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day put/call volume ratio of 0.90 ranks in the highest percentile of its annual range. Should Microsoft Corporation (NASDAQ:MSFT) turn in another well-received earnings report, an unwinding of these bearish bets could create a tailwind for the shares.


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