Shares of tech giant Microsoft (MSFT) have underperformed the market this year, with a 27 percent drop. One trader sees a rebound in the next month.
That’s based on the January $265 calls. With 31 days until expiration, 4,094 contracts traded compared to a prior open interest of 191, for a 21-fold rise in volume on the trade. The buyer of the calls paid $2.93 to get in.
Shares recently went for about $246, so they would need to rise about $19, or 7.7 percent, for the trade to move in-the-money. The strike price is still well under the stock’s 52-week high of $344 per share.
Despite the drop in shares this year, the company has been a fair performer. Revenues are up 10 percent, although earnings are off by 14 percent overall. Yet the software company has managed to keep profit margins high at 34 percent.
Action to take: Investors may like shares under $250 as a long-term buy. The stock yields about 1.1 percent at current prices, with room for more dividend growth down the line.
For traders, the calls could play out well, delivering mid-double-digit returns in the coming weeks. That’s partially based on the relative value in shares now, as well as how markets are somewhat oversold after last week’s rally.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.