Large bullish play on Microsoft

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Microsoft is bottoming out at a key level, and one investor is looking for a limited rally.

 

msft 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 today.

 

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 June.

 

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 surrounding Oracle.

 

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)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: CSCO , HPQ , MSFT , ORCL , XLK

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