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Microsoft Option Trader Bets $11.2M That 2020 Rally Will Continue

Wayne Duggan

Microsoft Corporation (NASDAQ: MSFT) shares are up 48.2% in the past year due in large part to impressive growth numbers from its booming Azure cloud business.

Microsoft reported another strong earnings report in May, and at least one large bull is betting the Microsoft rally has legs.

The Microsoft Trades

On Thursday morning, Benzinga Pro subscribers received 31 option alerts related to unusually large Microsoft option trades. Here are some of the largest:

  • At 9:35 a.m. ET, a trader bought 3,300 Microsoft call options with a $165 strike price expiring on Jan. 15, 2021. The contracts were purchased at the ask price of $34 and represented an $11.22 million bullish bet.
  • At 9:59 a.m. ET, a trader bought 517 Microsoft call options with a $190 strike price expiring on Sep. 18. The contracts were purchased near the ask price at $13.051 and represented a $674,736 bullish bet.
  • At 10:04 a.m. ET, a trader sold 884 Microsoft call options with a $220 strike price expiring on Jan. 15, 2021. The contracts were sold at the bid price of $6.80 and represented a $602,480 bearish bet.
  • At 10:08 a.m. ET, a trader bought 1,000 Microsoft call options with a $220 strike price expiring on Oct. 16. The contracts were purchased at the ask price of $3.701 and represented a $370,100 bullish bet.

Of the 31 total large Microsoft option trades on Thursday morning, 13 were calls were purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. An additional 14 trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish. The remaining trades were executed near the midpoint of the bid-ask spread, trades typically considered neutral.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader. Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their large stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large sizes and the timing of the biggest Microsoft option trades, there’s certainly a possibility they represent institutional hedging.

Path To $2 Trillion?

Microsoft’s Skype and Teams video conferencing platforms have gotten a huge boost in demand from the economic shutdown, and the work-from-home environment has also generated booming demand for cloud services. In other words, while other companies are struggling to survive, Microsoft is one of the few COVID-19 winners.

With Microsoft delivering quarter-after-quarter of impressive numbers, the stock’s market cap has pushed near the $1.5 trillion mark. Tuesday morning’s largest option trader may believe Microsoft has what it takes to beat Apple, Inc. (NASDAQ: AAPL) and Amazon.com, Inc (NASDAQ: AMZN) in the race to become the world’s first $2 trillion company.

Even the younger generation of speculative traders on Robinhood seem to recognize the long-term investment opportunity in Microsoft. Robinhood traders have gotten a lot of criticism for betting on high-risk stocks and even bankrupt companies in the past two months, but Microsoft is one of the 10 most widely held stocks among Robinhood users.

  MSFT Chart by TradingView new TradingView.widget( { "width": 680, "height": 423, "symbol": "NASDAQ:MSFT", "interval": "D", "timezone": "Etc/UTC", "theme": "light", "style": "1", "locale": "en", "toolbar_bg": "#f1f3f6", "enable_publishing": false, "allow_symbol_change": true, "container_id": "tradingview_be45c" } ); Benzinga’s Take

While there were more than 30 relatively large Microsoft option trades on Wednesday morning, all eyes were on that massive $11.2 million call purchase. Those calls have a break-even price of just $199, suggesting at least 1.5% additional upside over the next seven months.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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