Short-Term Option Bull Bets $1.4 Million On Microsoft Corporation (MSFT)

A massive block of weekly 6/24 53-strike calls was traded on Microsoft Corporation (NASDAQ:MSFT) earlier

by Karee Venema

Published on May 27, 2016 at 2:41 PM

Along with the broader Dow, Microsoft Corporation (NASDAQ:MSFT) is modestly higher heading into the Memorial Day weekend -- last seen up 0.6% at $52.19, following recent reports of a new trans-Atlantic partnership with Facebook Inc (NASDAQ:FB). In the options pits, meanwhile, call volume on the tech stock is running at 1.5 times the average intraday pace, and it looks like one options bull is betting big on extended gains over the next several weeks.

Specifically, a multi-exchange sweep of 20,000 weekly 6/24 53-strike calls crossed the tape shortly after lunchtime. According to Trade-Alert, these options were bought to open for an initial cash outlay of roughly $1.4 million (number of contracts * $0.68 premium paid * 100 shares per contract). This also represents the most the call buyer stands to lose, should the weekly options expire out of the money at the close on Friday, June 24.

Widening the sentiment scope reveals speculative players have preferred long calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, MSFT's 20-day call/put volume ratio is docked at a top-heavy 1.96, meaning nearly two calls have been bought to open for each put.

What's more, the stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.56 -- in the 30th percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward Microsoft.

Now appears to be a prime time for bargain-hunting options buyers to strike, too. Not only does MSFT's Schaeffer's Volatility Index (SVI) of 17% rest lower than 95% of all comparable readings taken in the past year, but its 30-day at-the-money implied volatility of 18.1% ranks in the 4th annual percentile. Summing it all up, premium on MSFT's near-term options is pricing in relatively low volatility expectations at the moment.

On the charts, Microsoft Corporation (NASDAQ:MSFT) has spent 2016 bouncing between lows near $48 and highs around $57. More recently, the stock has found a double-barreled layer of resistance at its 80-day moving average and the site of its April 22 earnings-induced bear-gap close.

MSFT daily chart

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