Weekly Options Traders Win Big with Microsoft Calls

Open interest data on short-term options suggested a bearish bias on Microsoft

Jun 15, 2017 at 3:23 PM
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Subscribers to Schaeffer's Weekly Options Trader service recently enjoyed a 105% profit on Microsoft Corporation (NASDAQ:MSFT) weekly 6/9 66.50-strike calls. Below, we'll break down what attracted us to MSFT stock, and how the options trade unfolded. 

We recommended weekly calls on Microsoft stock back on May 16, with the shares sporting a solid 10.8% year-to-date gain. With MSFT holding above the 10% year-to-date level after pulling back from record highs, we also noted support from the 20-day moving average, a familiar level of support in 2017. 

This all came after the company reported impressive earnings on April 27, resulting in a positive reaction. The stock's next pullback was contained just above this close, suggesting another layer of technical support was in place. 

Plus, short-term options traders were more put-skewed than normal, based on the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.16. There was potential for this seemingly bearish sentiment to unwind and help Microsoft on the charts. Not to mention, the stock's Schaeffer's Volatility Index (SVI) ranked in the low 12th percentile of its annual range, suggesting the options market was pricing in low volatility expectations. 

Following a brief pullback, MSFT gravitated back toward its 20-day moving average, eventually breaking higher to record levels. On June 5, we suggested options traders close 50% of their position. Then, on June 9 -- just before the tech sell-off -- we closed the second half of the position, for a total gain of 105%. 

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