Option Activity Alert: MSFT, ALL, INTU

MSFT – Microsoft Corp. – The June low for shares in computer-maker Microsoft at $23.65 remains the low-water mark despite a 14.6% slump over the last two weeks. The selling pressure stopped on Tuesday with buyers gathering at $24.03 to support the stock. Over the remainder of the week its shares have added a further $1.25 to trade at $25.28. So while the broad market suffered a far worse fate, Microsoft bulls were loading up to the gills. One option investor wanting to make sure he doesn’t miss the boat on Friday appears determined to do better over the next three months. This options trader sold 3,000 put options at the $25 strike price expiring in October at a premium of $1.45. Writing options conveys certain obligations. In this case the investor must pay $25 for shares in the company at expiration if the share price is below the strike price at the time. While that might seem risky given the proximity of the strike price to what buyers and sellers agree Microsoft is worth today, the $1.45 premium means that in the event of having its shares put to him, the investor is effectively setting a purchase price of $23.55 or 10-cents below the June low. The position will also benefit is the broad market stops its vicious gyrations and implied volatility continues to pare its gain. Already today Microsoft’s implied volatility reading slipped by about 10% to a reading of 32%.

ALL – Allstate Corp. – Shares in the giant-insurer missed out on a Friday rally that helped build investor confidence, but one sizeable options trade points to a recovery within five months for Allstate. Its shares were lower by 1% at $25.42 and within just 6% of its very recent 52-week low. At the start of May investors shared confidence in Allstate along with a bullish view of the broader market when both valuations reached a climax. Allstate at the time traded to $34.38. Undeterred by the resurgence of toxicity surrounding financial names, one option trader deployed a 25,000 lot bull spread using call options expiring January. The investor bought calls at the $30 strike paying 60 cents and sold the same chunk at the higher $32 strike for 25 cents paying a net premium of 35 cents. That means that should Allstate’s share price recover beyond $30.35 through the first month of 2012 the investor would start to smile. The maximum gain on this trade of $1.65 per contract would occur at $32.00 or above. Option implied volatility slumped by almost 20% on Friday to 41%.

INTU – Intuit Inc. – A four-way spread on tax-software provider Intuit leaves room for interpretation, but looks like this options investor has a guardedly-optimistic view on developments. Four pockets of 4,000 options traded across four strike prices in the January contract suggesting fears for a further move down in shares of Intuit while also looking for a significant recovery. Intuit’s stock is trading at $42.40 on Friday lunchtime and recently stopped its plunge at $38.05. The investor appears to have bought a put spread that would safeguard against a revisit buying the $40/$37.50 puts spread at a net $1.05 premium. At the same time he also bought the $46/$50 call spread for a net premium of $1.25.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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