Pre-Earnings Bears Take Aim at Microsoft Corporation (MSFT)

Microsoft Corporation (MSFT) will report quarterly earnings tonight

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Published on Jan 26, 2015 at 10:53 AM
Updated on Apr 20, 2015 at 5:32 PM

Microsoft Corporation (NASDAQ:MSFT), which is slated to report earnings after the close, is seeing accelerated options trading activity this morning. Puts are especially popular, running at quadruple the expected intraday rate. Also, expectations for a big post-earnings move are on the rise, per MSFT's 30-day at-the-money (ATM) implied volatility -- up 8% to 22.4%, in the 76th annual percentile.

Digging deeper, the weekly 1/30 46-strike put is being targeted more than any other MSFT contract. From the looks of it, these bets are being bought to open, as traders expect the stock to slide below $46 by Friday's closing bell -- when the weekly series expires.

Put buying has picked up in MSFT's options pits of late. The equity's 10-day put/call volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) registers at 0.74 -- compared to 0.55 two weeks ago. The current ratio is also higher than more than three-quarters of all other readings from the last year, suggesting a healthier-than-usual appetite for bearish bets over bullish.

As alluded to earlier, MSFT will step under the earnings spotlight this evening, and the options market is expecting a 3.8% single-session post-event move, per near-term ATM straddle stats. Over the past four quarters, though, the stock has averaged a move of just 1.2% the day after releasing quarterly data.

On the charts, Microsoft Corporation (NASDAQ:MSFT) has had an impressive year. While the shares are down 1.4% this morning to trade at $46.52, they've advanced roughly 29% over the last 12 months. If this longer-term technical momentum continues, a capitulation among the option bears could spell additional upside.

Daily Chart of MSFT since January 2014


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