Microsoft is bottoming out at a key level, and one investor is
looking for a limited rally.
optionMONSTER's Heat Seeker tracking system detected the purchase
of 90,000 September 27 calls for $0.10 and the sale of 130,000
September 28 calls for $0.05. The trade, known as a ratio spread,
was the largest transaction across all eight exchanges so far
By selling more calls than he or she bought, the investor
reduced their cost basis to just $0.03 per contract owned. The
strategy will earn a maximum profit of 3,233 percent if MSFT closes
at $28 on expiration. The gains will erode above that level and
turn to losses over $30.25.
The software giant rose 0.67 percent to $24.88 in afternoon
trading. It's down about 4 percent so far this month but appears to
be basing around the same $24 level that provided support in early
Investors, spooked by negative headlines in technology, have
punished the stock and dismissed the company's last earnings report
on July 22, which was better than expected. Stories weighing on the
sector have included a disappointing outlook from Cisco Systems,
the ouster of Hewlett-Packard CEO Mark Hurd and legal worries
Today's ratio spread reflects a belief the worst is priced in
and MSFT is now likely to rally.
There was also buying in the October 27 calls for $0.25 to
$0.27, although volume was below open interest.
Overall options activity in MSFT was almost twice the average
level, with calls accounting for a bullish 93 percent of the flow,
according to Heat Seeker.
(Chart courtesy of tradeMONSTER)