Microsoft has been a slow-and-steady stock for years with not much price action, and Andrew Giovinazzi of OptionPit.com, offers a trade based on the sudden heavy open interest in September calls.
One of the really fun parts about this Fed-juiced market is that all the traders sit around and do nothing since we have to wait for what the Board of Governors comes out with. I can remember trading for a decade-and-a-half and what the Fed was doing was at the bottom of the list.
There was too much growth to contend with. We will know when things improve when each Fed minutes release take on less meaning. The underwhelming VIX over the last couple of days signals we might be moving that way. However, It does look like we are getting a signal in MSFT.
Look at the heavy open interest in MSFT September calls. I saw a lot of this volume go up last week and it is still there.
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Also note the high implied volatility for 30-day IV. It is actually higher than the previous three earnings announcements and clocking in at the high of the year. Someone wants to own lots of calls in the name at the least. You can never tell what is going on behind the scenes but this does feel like a buyer of just OTM calls wanting to get long. I think this jump in IV is probably a better opportunity to sell puts.
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The Trade
I like selling OTM puts or put spreads in the Sep or Oct cycle in MSFT. Trade this like you would a “wheel trade” and expect to take MSFT stock if you are short-term wrong (with the paper) but end up being long-term right.
Disclosure: We have positions in MSFT.
By Andrew Giovinazzi, Chief Options Strategist, OptionPit.com
