Unusual Options Activity: Microsoft (MSFT)

Tech conglomerate Microsoft (MSFT) has been trending higher in recent sessions, even as it looks like the company’s potential merger with Activision Blizzard (ATVI) will face sufficient regulatory scrutiny to be scrapped. One trader sees shares reversing lower.

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  • That’s based on the July 21 $345 puts. With 31 days until expiration, 8,788 contracts traded compared to a prior open interest of 311 for a 28-fold rise in volume on the trade. The buyer of the puts paid $7.83.

    The trade comes as shares just hit a new all-time high over $348, following a 41 percent rise over the past year. From here, shares would need to drop just $3, or about 1 percent, for the option to move in-the-money. Such a move is easily possible in the span of a month.

    Besides running to a new price high, shares have moved from 24 times earnings last year to over 36 times earnings now, a significant premium to the market. Even with the company’s push to unlock AI technologies, a pullback looks likely soon.

    Action to take: While a great company, investors interested in shares should wait for a pullback. At current prices, Microsoft yields 0.8 percent. Over the past five years, the dividend has averaged closer to 1.1 percent. That yield would be a reasonable target for the long-term purchase of shares.

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  • For traders, the July puts are a short-term trade that can likely see mid-double-digit gains on a small pullback in the coming weeks.


    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.