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Huge Bullish Activity in Microsoft

By Mike Yamamoto of OptionMonster

NEW YORK -- Microsoft (MSFT) is trading at its best levels in 14 years, and options are looking for even more gains this summer.

OptionMonster's tracking system shows that about 32,000 September 48 calls traded on Friday as premiums rose from 20 cents to 26 cents, including 20,000 that were bought in less than one minute. These are clearly new positions, as open interest in the strike was only 1,590 contracts before the session began.

The long calls lock in the price where the stock can be purchased through mid-September, no matter how far it might climb. They could be sold earlier at a profit if premiums rise further with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $48.

The software giant hasn't traded above $48 since April 2000, but is up 40% in the last year with renewed optimism over new CEO Satya Nadella and his emphasis on cloud-computing initiatives, as well as surprising strength in the PC business.

Microsoft rose 0.23% on Friday to close at $44.50. The stock spiked to $45.71 on July 17, a few days before the company's last earnings report.

Total Microsoft calls outnumbered puts by 2 to 1 on Friday.

Yamamoto is long Microsoft.


Now let's see what TheStreet Ratings has to say about Microsoft.

TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MSFT's revenue growth has slightly outpaced the industry average of 10.5%. Since the same quarter one year prior, revenues rose by 15.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • MSFT's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, MSFT has a quick ratio of 2.31, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Compared to its closing price of one year ago, MSFT's share price has jumped by 38.92%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MSFT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Net operating cash flow has significantly increased by 61.17% to $9,514.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 39.30%.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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