Market Overview

Option Traders Make Massive Bets On Microsoft Rebound

Option Traders Make Massive Bets On Microsoft Rebound

Microsoft Corporation (NASDAQ: MSFT) is down 2.8% this week as tech stocks sold off for the second straight day on Tuesday. The dip in Microsoft was enough to get the attention of some large option traders on Tuesday.

The Trades

On Tuesday morning, Benzinga Pro subscribers received 14 option alerts related to unusually large Microsoft trades. Here are four of the largest:

  • At 10:27 a.m., a trader sold 1,882 Microsoft put options with a $135 strike price expiring on Sept. 20 near the bid price at $2.042. The trade represented an $384,304 bullish bet.
  • At 11:29 a.m., a trader bought 750 Microsoft $135 put options expiring on Oct. 18 near the ask price at $4.201. The trade represented a $315,075 bearish bet.
  • At 11:42 a.m., a trader sold 750 Microsoft put options with a $120 strike price expiring on March 20, 2020 at the bid price of $4.401. The trade represented an $330,075 bullish bet.
  • At 11:56 a.m., a trader sold another 2,671 Microsoft put options, this time with a $135 strike price expiring on Oct. 18 at the bid price of $3.80. The trade represented an $1.01 million bullish bet.

Of the 14 large Microsoft option trades,eight were either calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Six trades were either calls sold at or near the bid, or puts purchased at or near the ask, trades typically seen as bearish.

See Also: Analysts React To Heavy Selling Pressure In The Tech Sector

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 sizes of some of Tuesday’s Microsoft options trades, there’s a distinct possibility of institutional hedging.

Tech Rotation?

The mixed option trading in Microsoft on Tuesday is a reflection of the uncertainty ahead for the tech giant. In addition to concerns about antitrust actions against big tech companies and the ongoing trade war with China, several analysts have said this week that tech investors may be taking profits after years of outperformance and rotating cash into value stocks.

Microsoft bears may see this week’s dip as a sign the multi-year run for tech stocks is coming to an end. They could also see a potential slowdown in Microsoft’s cloud services business, which has propelled shares higher in recent quarters.

However, Microsoft bulls are likely focusing on the fact that there is no clear fundamental catalyst behind this week’s sell-off, and Microsoft’s business appears to be firing on all cylinders despite the market weakness.

Benzinga’s Take

It’s easy to lump Microsoft in with other mega-cap tech stocks that are trading at extremely high valuations just because of its size and recent performance. However, with a forward earnings multiple of just 23.1, Microsoft’s valuation doesn’t appear to be overly stretched.

Traders should keep an eye out for headlines in throughout the rest of the week to see if there actually is a fundamental reason for the tech sector sell-off or if Microsoft has simply traded lower in sympathy for its higher-multiple peers.

Do you agree with this take? Email with your thoughts

See Also: How To Read And Trade An Options Alert


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