In the December 18 trading session, Microsoft Corporation (MSFT) stock traded at $155.42 as of this writing, up 0.43% from the previous session. This performance lagged the S&P 500’s (SPY) 0.15% increase as of this writing. The Dow Jones Industrial Average (DIA) surged 0.13% while the tech-heavy Nasdaq (QQQ) index gained 0.22%
Microsoft stock has returned 2.9% over the past month, which shows that MSFT outperformed the US tech and communications services industry. The industry returned 0.3% at the same time.
At the beginning of December, I looked at the latest MSFT technicals and fundamentals in Is MSFT Overvalued? Technical Analysis Says Yes and noted that the company’s rich valuation metrics could limit further upside in the stock. Despite overvalued conditions from the technical standpoint as well, MSFT stock has risen from $149.55 to $155.42 through December 18. This change represents an increase of about 4%.
Moreover, there have been several bullish bets placed on Microsoft stock during today’s trading session, suggesting that it could surge higher in the coming weeks. So, in this article, I’m going to discuss the stock’s recent options trades and interpret given transactions for individual investors.
3.4% move in Microsoft stock
Looking at the January 17 options, I see a bid/ask for the $155.00 call option of $2.92/$2.93. Also, I see a bid/ask for the $155.00 put option of $2.36/$2.37. Keep in mind that the options strike is closest to the MSFT price of $155.42 at the moment of writing. We can calculate the expected price move using the mid-prices of these options:
2.365 (155.00 Put) + 2.925 (155.00 Call) = 5.29/155.42 = 3.4%
As you can see, the aforementioned calculations imply that MSFT stock could rise or fall by about 3% by the January expirations from the $155.00 strike price. This estimation uses the long straddle strategy. This assessment would place the stock in a trading range of $150.35–$160.08 by the expiration date.
Moreover, the calls at the $155.00 strike price outweigh the put options about 3:1 with 55,913 open calls to 26,323 open puts. You should also pay attention that the calls at the $160.00 strike price significantly outweigh the put options, with 28,747 open calls to just 1,793 open puts.
A buyer of the $160 strike price calls would need the stock to rise to around $161.00 by the expiration date to break even. This difference in the open interest levels suggests a more bullish market sentiment on Microsoft stock.
Options traders betting on a bullish jump
Traders from the options market made several bullish bets during today’s trading sessions, suggesting that MSFT stock could rise in the coming months. The open interest levels for January 17 $155.00 calls increased modestly during today’s trading session.
According to Barchart.com, the open contracts increased by 6,300 contracts to about 55,913. The contracts traded at $2.88 per contract. With that being said, the open interest represents a total dollar value of about $16 million. For the buyer of the $155.00 calls to earn a profit, Microsoft stock would need to rise to around $157.88. That would be a gain of about 1.5% from today’s price.
With respect to the open interest levels for options that expire on February 21, $155.00 calls almost doubled early this morning. According to data provided by Barchart.com, the open contracts rose by 5,432 contracts to about 12,606. A buyer of the calls would need MSFT stock rise to about $160.30 by the end of February. This is a huge bullish bet as well. The open interest has a dollar value of about $7 million.
So, analyzing given transactions, we can conclude that traders from the options market are bullish on the stock. Moreover, they expect a 1.5%–3% upward move in the stock in the coming weeks.
If you’re interested in more technical analysis like this, please check out General Electric Options Traders Betting on a Bullish Jump, Should You Buy Sprint Stock after a Recent Pullback?, and Micron Stock Will Fall, Says Technical Analysis.