Microsoft Corporation (NASDAQ:MSFT) had a dull period for the last three months as the stock was hovering around the $43 mark. The stock has dropped nearly 9% since the beginning of this year and has dropped more than 13% since its 52 week high in November 2014. Microsoft Corporation (NASDAQ:MSFT) stock is currently trading at $42.9 and the company is expected to report is earnings report for fiscal quarter ending March 2015. As expectations grow, it is quite obvious to assume that options volumes might go up ahead of the earnings report. CNBC contributor, Dan Nathan talked on CNBC about one particular options play that grabbed his attention.
Microsoft Corporation (NASDAQ:MSFT) stock dropped more than 1.5% on Friday and went up by more than 3% on Monday, Nathan said that the options market is implying this huge up and down movement before and after Friday. He pointed out that it is a big movement when compared to a four quarter average movement of 3%. He said that the options volume went up by 2.5 times average daily volume on Monday. He mentioned that the calls have outnumbered puts 2:1. He then talked about one interesting trade that grabbed his eye.
“[…] There was one interesting trade that caught my eye when the stock was $46, traded about 25,000 of the May 44 calls at 47 cents. But here is the thing, not all buyers are created equal. [..] Could have been a trader who has long a lot of stock and who had sold calls against it to add some yield, closing those calls. If you are probably looking out of the earnings, they are looking at the strong stock behavior today and looking at the way some other large multinationals were trading after the results and therefore thinking why cut my gains,” Nathan said.
He feels that from the last one year stock trend, Microsoft stock had found a strong bottom at $41. He said that the stock is getting up to the $44 mark ahead of the earnings on Thursday. He pointed at the stock drop of around 9% post Microsoft’s earnings report during January. Nathan feels that this long holder of Microsoft stock, who has covered that 9% drop after January earnings wanted to cash in on the upside movement post the earnings on Thursday. That’s a huge bullish bet on Microsoft stock.
According to Zack investment research, consensus Earnings Per Share forecast for Microsoft stock is $0.51, whereas the company had reported $0.68 during the same period in 2014. In the last four quarters Microsoft managed to outnumber the consensus EPS expectations by 10% on three occasions, failing to do so only during the quarter that ended in June 2014. Will it be able to meet or exceed the expectations? Many investors had placed a huge bullish bet on Microsoft to exceed the expectations though.
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