Big Printin’ – MSFT Re-Surfaces

by Dan April 24, 2017 12:09 pm • Big Printin'

Microsoft (MSFT) will report their fiscal Q3 results after the close Thursday, April 27th. The options market is currently implying about a 3.5% move in either direction, which is shy to the 4.7% average one-day post-earnings move over the last 4 quarters and below the 10-year average one-day post earnings move of 4.5%.

With the stock at $67.40, the April 28th weekly 67.50 straddle (the call premium + the put premium) is offered at $2.50, if you bought that and thus the implied movement for the week (which is mostly for the earnings event) that you would need a rally above $70, or a decline below $65 on Friday to make money.

The stock caught my eye this morning as it is making new all-time highs, but also because of what appears to be a large opening call purchase in Oct expiration. Just before 10am, when the stock was trading $67.35 a trader bought to open 12,000 Oct 67.50 calls for $3.55 (or $4.26 million in premium). These calls break-even on Oct expiration at $71.05, up 5.5% from the trading level.

Obviously, the stock is now in uncharted territory, but today’s breakout from a technical standpoint may prove significant for two reasons. First, after making early 2017 gains, the stock has consolidated for nearly 3 months, it is far from overbought despite having gained 40% from its post-Brexit lows in June.

Secondly, today’s gap higher places it just above the uptrend that had been in place from late June until earlier this month. Establishing a new range above that uptrend might signal a next leg higher of the stock.  Regardless of that, $64-65 should serve as healthy near-term support, right back in the recent consolidation range:


Lastly, the stock trades at 22.5x expected fiscal 2017 eps growth of only 6%, on 5% expected sales growth. This is very near a 10-year high. After nearly 3 years of current CEO Satya Nadella re-positioning the company both internally and with investors, mundane things like valuation might start to creep back into investor psyche as they debate what the proper multiple should be for a $500 billion market cap company with fierce competition (from a handful of other $400- 500 billion market cap companies) for the fastest growing parts of their business.