Microsoft Corporation (MSFT) Option Traders Go Bargain Hunting

Microsoft Corporation's (NASDAQ:MSFT) short-term options are pricing in relatively low volatility expectations at the moment

by Karee Venema

Published on Mar 30, 2016 at 3:02 PM
Updated on Jun 24, 2020 at 10:16 AM

Microsoft Corporation (NASDAQ:MSFT) is up 0.9% at $55.20 this afternoon, as the firm's annual developer conference, Build, gets underway. Earlier, Microsoft said its Windows 10 operating system -- launched last July -- has 270 million users, and CEO Satya Nadella reaffirmed MSFT's commitment to artificial intelligence (AI) bots, despite last week's controversial launch of its Internet bot, Tay. Meanwhile, options traders are bearing down on the tech stock, with both calls and puts trading at a faster-than-usual clip.

By the numbers, roughly 56,000 calls and 36,000 puts have changed hands, compared to an expected intraday amount of 56,000 total options. The stock's January 2017 57.50- and 60-strike puts, as well as the January 2017 50- and 52.50-strike calls have commanded the most attention, and it looks as if the activity here may be part of a larger spread strategy.

Meanwhile, nearer-term traders are targeting MSFT's weekly 4/1 55-strike put, where it seems safe to assume new positions are being purchased. If this is indeed the case, the goal of the put buyers is for MSFT to settle the week -- when the options expire -- south of $55. Should the stock maintain its perch above the strike, though, the most the put buyers stand to lose is the initial premium paid.

More broadly speaking, long calls have had the edge over long puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, MSFT's 10-day call/put volume ratio of 2.25 ranks in the 71st annual percentile.

Echoing this call-skewed backdrop is MSFT's Schaeffer's put/call open interest ratio (SOIR) of 0.50. Not only does this indicate that calls double puts among options expiring in three months or less, but it sits lower than 89% of all comparable readings taken in the past year.

Now appears to be a prime time to purchase near-term options on MSFT, too, considering its Schaeffer's Volatility Index (SVI) of 18% rests in the 7th percentile of its annual range. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) of 88 suggests the options market has tended to underprice MSFT's ability to make big moves on the chart over the past year.

Technically, the shares of Microsoft Corporation (NASDAQ:MSFT) are up about 35% year-over-year. More recently, however, the stock has struggled in the $55.50 region throughout 2016, and topped out today at an intraday peak of $55.64.

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