Big Printin’ – $MSFT Party Like it’s Y2K

by Dan April 18, 2016 3:24 pm • Commentary

On Friday’s Options Action, my co-panelist Carter Worth of Cornerstone Macro Research made the bullish case for a breakout of shares of Microsoft (MSFT) in the near future:

Interestingly, Carter beat me to it, as I had pitched the idea to our producer Friday morning. Early bird gets the worm I guess.  Well, at least one trader agrees with Carter today, as MSFT nears its 52 week highs, a trader sold to close 4500 of the April 22nd weekly 55/57 call spreads at $1.11 and bought to open 4500 May 59/61.50 call spreads for 35 cents. This spread now breaks even at $59.35, up a little more than 5% from the trading level of $56.20 with a max gain of $2.15 if the stock is $61.50 or higher, up 9.5%.

Why the roll? With earnings expected Thursday after the close, and the call spread worth more than 50% of the width of the spread, (with an implied move 5%) the trader is likely booking some of the profit and levering up a bit more in the case of a massive breakout following the fiscal Q2 print. I would also add that the stock has had two 10% one day rallies following earnings in the past year, and I suspect this trade could be leverage to existing long position, looking to add some torque in the event of another 10% post earnings rally.

A quick look at the 20 year chart and you see that we are 10% from the prior all time high made on December 30th 1999 at $59.97:

From Bloomberg
From Bloomberg

The last time MSFT sniffed $60 it was the day before Y2K, the year the company reached $20 billion in annual sales. They are expected to have close to $95 billion this year. While that is truly remarkable, it is not an apples to apples comparison when you consider just how much stock the company has returned (about $95 billion) to shareholders in the form of buybacks and dividends in just the last 6 years, from Microsoft Investors Relations:


Reminder: We’ll be hosting a webinar for The Ticker District tonight at 8pm that concentrates on investing and trading during earnings season. If you haven’t already, register here. Dan will be discussing IBM’s earnings, due after the bell, on the webinar and comparing the inputs we used to what actually transpired. Other stocks to be discussed include GOOGL, GM and GS.