Unusual Call Options in Microsoft Shows Investors are Bullish on MSFT

Today, two large, unusual call options tranches have traded in Microsoft Corp. (MSFT), showing investors are still bullish on MSFT. I discussed the stock's underlying value in another Barchart article today, “Microsoft Stock Still Looks Undervalued Based on FCF Projections, Despite Higher Capex.”

MSFT is at $410.93 in midday trading today, down about 1%. However, it could be worth considerably more, based on the valuation I demonstrated in today's Barchart article.

I showed that over the next 12 months, based on Microsoft's strong operating cash flow, despite higher capex, MSFT could be worth over $530 per share. In addition, other analysts' price targets are even higher, as I showed in the article.

That could be one underlying reason why investors seem enamoured today with MSFT call options. Granted, they are for expiry today, but they show keen interest in at-the-money (ATM) calls.

The Barchart Unusual Stock Options Activity Report today shows this unusual call options trading volume. There are two call options tranches, as seen below, that have traded with very high amounts.

Unusual MSFT Call Options Plays

The Report shows that over 23,800 call options have traded at the $410 strike price expiring by the end of today. That is over 78 times the prior number of calls previously outstanding at this strike price.

Note that the premium paid was $1.68, implying that buyers expect MSFT stock to rise to over $411.58, or about 0.16% above today's price. 

Moreover, sellers of these calls receive a premium that represents a 0.16% yield for one day. They are happy to sell their shares at a net profit over today's price plus the premium.

In both cases, this indicates that investors expect a higher price for MSFT stock.

Speculative Plays

By the way, this is a highly speculative play. Most investors should not copy this trade. It's like gambling. Institutional investors can offset their risk with other plays.

Instead, as I showed in my other Barchart article today, it makes more sense to sell short out-of-the-money (OTM) put options that expire in over a month from now.

The other MSFT call option tranche is even more speculative as the call option strike price is higher at $412.50. In fact, it might even be that some investors are shorting this call to pay for the other call option, or vice versa.

The bottom line is that MSFT stock is gaining attention from call option at-the-money or slightly-higher strike price buyers and sellers.

This could be because these investors expect MSFT to break out from its present depressed price today. That compares to its long-term value, as I discussed this valuation in my other Barchart article today.