Breaking Down This Huge Bet on Microsoft Corporation (MSFT)

One trader may have initiated a long strangle on Microsoft Corporation (MSFT)

Digital Content Group
Apr 6, 2015 at 10:55 AM
facebook twitter linkedin


Microsoft Corporation (NASDAQ:MSFT) is 1% higher this morning at $40.68, following an upgrade to "outperform" from "market perform" at Wells Fargo. Meanwhile, the stock's options are running at a slightly accelerated clip, helped by a pair of huge blocks that crossed the tape earlier.

Diving into the details, a lot of 4,250 January 2016 50-strike calls changed hands near the ask price earlier, as did a matching block of January 2016 40-strike puts. If the positions are opening, the speculator may be initiating a bearishly biased long strangle, expecting MSFT to either topple $50 or breach $40 by January 2016 options expiration. Specifically, based on the net debit of $3.61 per pair of contracts, the lower breakeven is $36.39 (put strike less net debit) -- a new annual low -- and the upper is $53.61 (call strike plus net debit) -- 15-year-high territory.

Currently, MSFT is in the midst of a multi-month pullback. Since topping out at $50.04 in mid-November, the shares have dropped 18.7%. More recently, the tech stock has underperformed the broader S&P 500 Index (SPX) by 14.6 percentage points over the last three months.

Nevertheless, bullish betting has been on the upswing. MSFT's 50-day call/put volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 2.35, or just 1 percentage point shy of an annual high. An unwinding of this optimism could spell downside for the shares.

Microsoft Corporation (NASDAQ:MSFT) could also be vulnerable to negative analyst notes. Nearly half of the analysts tracking the stock rate it a "buy" or better, and MSFT's average 12-month price target of $46.97 stands at a 15.5% premium to current trading levels.

 

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 

 


 


 
Special Offers from Schaeffer's Trading Partners