Unusual Options Activity In Microsoft $MSFT

| September 9, 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, as you likely are aware, is the largest software company in the world.  The company generates nearly $94 billion in revenues and $12 billion in profits per year.  For a good description of the company, follow the link.

$MSFT is trading at $43.22, down 6% for the year.  That’s 12% below the 52-week high and 10% from the 52-week low.

So what does unusual options activity in MSFT tell us?

The stock market has been quite volatile lately but has been more down than up.  As such, it’s no surprise for large companies, like MSFT, to be down with the overall market.  Tech companies have been hit particularly hard as investors have been quick to take profits in the sector.

MSFT was having a mostly quiet year until dropping along with the broad market during the correction.  However, the company is getting ready to release some new products heading into the holiday season.  And, the software giant has been active in the acquisition space as well.

Here’s the deal…

This week, a trader bought a large block of put debit spreads in MSFT.  Keep in mind, a debit spread is any type of spread which results in a cash outflow.  In this case, the debit spread is a vertical put spread, which makes money if the underlying goes down, up to a certain strike.

Specifically, a trader purchased 8,000 November 40 puts for $1.16 while simultaneously selling the November 35 puts for $0.40.  The total cash outlay for this trade is roughly $600,000, which is the max loss for the trade.

On the other hand, the max gain for the trade occurs if MSFT closes at $35 or below on expiration.  Total profit for the spread would be $3.4 million in that scenario.

Here’s the chart of $MSFT:

unusual option activity, a chart of MSFT

As you’d expect, MSFT plunged below the 50-day moving average during the peak of the latest correction.  The stock has stabilized around the current price, which is still a fair amount below the 50-day line, despite having regained ground.

This trade could be suggesting that there’s still quite a bit more downside left in MSFT before the end of the year (or at least November).  After all, the stock has barely been below $40 this year (and nowhere near $35).

Given the strikes in play, it’s much more likely that this spread is a hedge against a long MSFT stock position.  The company has beaten earnings recently, and could get a boost from holiday product launches.  The put spread is a relatively cheap way to protect against a big downward move.

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.