Microsoft Sees Bullish Option Activity As Stock Hits New All-Time High

Microsoft Corporation MSFT is up another 57.2% in the past year as tech stocks continue to lead the market rally.

On Thursday, Microsoft had the attention of several large option traders, and the action was mostly bullish.

The Trades

Benzinga Pro subscribers received seven option alerts related to unusually large trades of Microsoft options. Here are the four largest:

• At 9:32 a.m., a trader bought 1,276 Microsoft call options with a $165 strike price expiring on March 20 near the ask price at $5. The trade represented a $638,000 bullish bet.
• At 9:33 a.m., a trader bought 1,000 Microsoft call options with a $162.5 strike price expiring on Jan. 24 at the ask price of $2.851. The trade represented an $285,100 bullish bet.
• At 10:18 a.m., a trader bought 986 Microsoft call options with a $165 strike price expiring on Apr. 17 near the ask price at $6.30. The trade represented a $621,180 bullish bet.
• At 11:14 a.m., a trader bought 1,111 Microsoft call options with a $170 strike price expiring on Apr. 17 near the ask price at $4.065. The trade represented an $451,621 bullish bet.

Of the seven large Microsoft option trades, five of them, including the four largest, were calls purchased at or near the bid, trades typically considered bullish. Only two trades were puts purchased at or near the ask or calls sold at or near the bid, trades typically considered bearish.

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 relatively large sizes of the Microsoft trades on Thursday morning, one or more could potentially be institutional hedges.

More Upside In 2020?

Microsoft comes into 2020 with some major momentum, particularly in its Azure cloud services business. Microsoft landed a major cloud computing win over Amazon.com, Inc. AMZN back in October when it beat out Amazon to land the $10 billion JEDI Pentagon contract.

Thursday’s bullish options action comes after Wells Fargo reiterated its Overweight rating for Microsoft and raised its price target for the stock to $185 earlier in the day. The target hike came just three days after Credit Suisse reiterated its Outperform rating and raised its price target to $180. Credit Suisse said its research suggests Microsoft is gaining cloud market share and its commercial cloud revenue could reach $100 billion within five years.

Traders don’t appear to be concerned about a Windows software update going out this week after the Washington Post reported the NSA found a “dangerous Microsoft software flaw” and reported it to the company.

Benzinga’s Take

The largest Microsoft option trades on Thursday are relatively short-term in nature, with expiration dates ranging from less than two weeks to about three months. These traders may simply be expecting big earnings numbers from Microsoft when it reports on Jan. 29 after the market close.

Microsoft's stock traded around $164.95 per share at time of publication, an all-time high.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

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