Unusual Options Activity In Microsoft $MSFT

| September 30, 2015 | 0 Comments

MSFT OptionsUnusual Options Activity In Microsoft $MSFT 

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Microsoft $MSFT is, as I’m sure you know, the largest software company in the world.  The company’s Windows operating system dominates the PC market.  For a good description of the company, follow the link.

$MSFT is trading at $43.44, down 5% for the year.  That’s 11% below the 52-week high and 10% from the 52-week low.

So what does unusual options activity in MSFT tell us?

MSFT has pretty much moved in step with the market.  The stock, with a beta of 0.92, is at the point where it pretty much tracks the overall market very closely.  While MSFT has dropped with the market, it actually has outperformed the S&P 500 by over 2% this year.  That’s a sign of relative strength.

Here’s the deal…

This week, a trader sold a large block of MSFT calls expiring in early November.  Keep in mind, a call option makes money when the underlying stock or stock goes up.  As such, selling calls would make money if the stock declines or stays below the call strike.

Specifically, a trader sold 16,700 48 calls expiring on November 6th.  The total cash collected for this trade is roughly $330,000 or $0.20 per option, which is the max gain for the trade.  The trade breaks even at $47.80.

Here’s the chart of $MSFT:

unusual option activity, a chart of $MSFT

As you can see, MSFT dropped below its 50-day moving average during the stock correction in late August.  It’s regained quite a bit of ground, but is still trading beneath the 50-day line.

This trade is suggesting MSFT has some upside, but is likely to be neutral for the next month.  Basically, the trade is one of two things… a covered call trade or a naked call sale.

The covered call trade would be clearly bullish since the stock could still appreciate over $4 and the trade would be maximized.  On the other hand, even a naked call sale is somewhat bullish considering it’s so far out-of-the-money.  At the very least, it would be a neutral stance on the stock – which is saying something considering where the market has been moving lately.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.