Microsoft Option Trader Bets $1M On 10% More Upside

Shares of Microsoft Corp MSFT are up 47.2% in 2019 as the company’s cloud services business continues to gain steam.

But while some Microsoft investors may be tempted to take profits on the large gains, several large option traders are making big bets that the Microsoft rally will continue.

The Trades

On Friday, Benzinga Pro subscribers received nine option alerts related to unusually large trades of Microsoft options. Here are some of the largest:

• At 9:51 a.m., a trader sold 824 Microsoft call options with a $148 strike price expiring on Nov. 29 near the bid price at $1.73. The trade represented an $142,552 bearish bet.
• At 10:19 a.m., a trader sold 1,006 Microsoft put options with a $149 strike price expiring on Nov. 22 near the bid price at $1.261. The trade represented a $125,826 bullish bet.
• At 11:46 a.m., a trader bought 500 Microsoft call options with a $145 strike price expiring in June 2021 at the ask price of $20.65. The trade represented a $1.03 million bullish bet.
• At 11:59 a.m., a trader bought 2,500 Microsoft call options with a $150 strike price expiring on Dec. 20 at the ask price of $2.40. The trade represented an $600,000 bullish bet.

Of the nine large Microsoft option trades on Friday, seven were either calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Just two trades were either calls sold at or near the bid, or puts purchased at or near the ask, trades typically seen as bearish.

The two largest Microsoft option trades on Friday represented a combined bullish bet of more than $1.63 million. The largest trade of June 2021 call options has a break-even price of above $165.65, suggesting more than 10% upside for Microsoft shares over the next 19 months.

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 larger 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 large size of the largest Microsoft trade, it could potentially be an institutional hedge.

Head In The Cloud

Microsoft has made tremendous progress in transitioning its business more toward a subscription-based, cloud-centric model. Last quarter, Microsoft reported impressive 59% Azure revenue growth.

Microsoft's cloud improvements paid off in a big way when it recently landed the $10 billion Department of Defense cloud services contract that competitor Amazon.com, Inc. AMZN had been widely anticipated to secure. Microsoft has been gaining cloud services share from Amazon for several years, and option traders may be betting that the ultimate value of the U.S. government contract will be much more than $10 billion.

So far this year, Microsoft has ridden its cloud momentum to new all-time highs, recently breaking above $145 for the first time following the government contract news.

Benzinga’s Take

The large bullish option traders are betting Microsoft’s positive momentum will continue for at least another year and a half. While 10% upside may not seem like a lot, it’s a bold move to bet on more upside from a $1.14 trillion company that is already up nearly 50% in less than a year.

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

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