Microsoft Corporation (MSFT) Bull Makes a Bold Bet

Calls remain hot, despite Microsoft Corporation's (MSFT) technical troubles

by Karee Venema

Published on Mar 27, 2015 at 3:02 PM
Updated on Apr 20, 2015 at 5:32 PM

Option bulls have set their sights on Microsoft Corporation (NASDAQ:MSFT) in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 50-day call/put volume ratio of 2.13 ranks in the 96th annual percentile. Simply stated, calls have been bought to open over puts at a faster clip just 4% of the time within the past year.

It's a similar set-up in today's trading, with calls crossing the tape at 1.5 times what's typically seen at this point in the day, and outpacing puts by a nearly 2-to-1 margin. The stock's April 46 call is easily the most active option, thanks to a massive block of 20,637 contracts that appears to have been bought to open for $0.02 apiece earlier. If these are indeed new long positions being initiated, the goal is for MSFT to move north of $46 by the close on Friday, April 17 -- when front-month options expire.

Should the shares settle south of the strike at expiration, the most today's call buyer stands to lose is the initial premium paid. Good news for the trader -- the equity's Schaeffer's Volatility Index (SVI) of 20% ranks lower than 79% of similar readings taken in the past 52 weeks. In other words, premium on MSFT's front-month options is pricing in relatively low volatility expectations at the moment.

Technically speaking, Microsoft Corporation (NASDAQ:MSFT) has had a terrible go of it in 2015 -- due in large part to a disastrous turn in the earnings confessional in late January -- down 11.9%. The shares are extending this negative price action today, off 0.8% at $40.90, and on pace for their worst weekly close since Jan. 30.


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