To The Moon

Yesterday, Microsoft options change appeared consecutively several groups quite interesting strategy, once again gave a very clear guide to the recent trend of technology stocks is very instructive.

There's good news and bad news for Microsoft's price action.

Good news: Several institutions are somewhat bullish on Microsoft.

Bad news: One institution is heavily bearish on Microsoft.

You may be in a hurry to see why the opposite conclusion would be interesting, but hold on. The general split view is not enough for me to analyze. For example, some institutions have bought calls and some have bought puts. This divergence means that the institutions are split on the fundamentals, or that some of them know something they don't know. If that happens to be the case during earnings season, then for investors, don't guess the ups and downs, the volatility is big enough to choose a straddle strategy.

However, Microsoft several groups of large orders do not belong to this category, the logic is cohesive, but not completely cohesive:

As shown in the chart above, there are four sets of options strategies, from bottom to top:

1.sell put bullish strategy

• sell $MSFT 20231117 280.0 PUT$

2.buy call bullish strategy

• buy $MSFT 20230721 295.0 CALL$

3.Three-legged hedging bullish strategy

• buy $MSFT 20230616 300.0 CALL$

• sell $MSFT 20230616 320.0 CALL$

• sell $MSFT 20230616 260.0 PUT$

4.sell call+buy put bear strategy

• sell $MSFT 20240119 340.0 CALL$

• buy $MSFT 20240119 250.0 PUT$

Strategy 1:sell put bullish strategy

sell $MSFT 20231117 280.0 PUT$ .

As we can see from the graph, this trader put 350 lots, which expire on November 17th this year, and the strike price is 280. When the option expires, the royalty will be $730,000. The 280 level is an important support level for Microsoft, and institutions selected this strike price several times in March to sell put. Choosing November means that traders are highly uncertain about the overall trend for the year and don't care whether the earnings report goes up or down, so choosing this strategy will yield an annualized return of 11.8%.

From the point of view of Microsoft, it is a very appropriate lying strategy, do not have to worry about intermediate fluctuations, but the recent trend does not have much guiding significance.

Strategy 2:buy call bullish strategy

buy $MSFT 20230721 295.0 CALL$。According to the information in the figure, this trader bought 2000 lots of call, which expired on July 21st this year, the strike price was 295, and the total transaction amount was 2.38 million. This strategy does not have any hedging, the strike price is selected out of the price, and the turnover reaches millions. It can be said that it is a relatively aggressive one-legged bullish strategy. Microsoft shares could break through their previous high again ahead of earnings season.

Strategy 3: The three-legged hedge bullish strategy

• buy $MSFT 20230616 300.0 CALL$

• sell $MSFT 20230616 320.0 CALL$

• sell $MSFT 20230616 260.0 PUT$

Don't spend a cent to buy the bullish strategy, very recommended. If Microsoft goes sideways after earnings, or fails to break above 295, or even suffers a black swan crash, the Strategy 2 trader will lose out because he has not hedged anything. Strategy 3, on the other hand, is truly offensive and defensive.

Strategy 3 is bullish on Microsoft to more than 300 and less than 320. If Microsoft moves sideways or slightly down, the option premium of sell put+sell call will perfectly hedge the loss of buy call. If Microsoft falls to 260, the trader will buy Microsoft at 260, but not lose.

It's a perfect trading strategy for Microsoft bulls. This strategy is No. 1 in my mind right now, if you're grading it during earnings season.

Strategy 4: sell call+buy put bearish strategy

• sell $MSFT 20240119 340.0 CALL$

• buy $MSFT 20240119 250.0 PUT$

Heavyweight order, sell call order 6000, buy put also, double bearish. The buy put amount reached 8 million, not to mention the sell call margin. If Microsoft goes up, it's a double loss, different from strategy 3.

But strategy 3 is defined as a rising top in a similar way, except strategy 3 hedges the time cost of the buy call with the sell call, and strategy 4 hedges the time cost of the buy put with the sell call.

One could argue that there is no contradiction between these two strategies, with one option expiring in June and one option expiring in January. But the biggest problem is time. Option expiration dates and order times in Strategy 4 are both interesting to watch.

Microsoft's earnings report is good, which is the basis for the execution of the first two large orders. Is it better to sell the call after Microsoft's earnings report? The trading day of the four major orders is the day before the CPI data is released. You remember what I summarized in the Short selling article, choosing specific times to mask the motivation to place orders.

There is a certain amount of confusion about expiration dates, with traders picking January, but I think that may be a bit of a smoke screen as well.

If you're bearish on Microsoft, consider Strategy 4's trade, which greatly reduces the cost of shorting.

Finally, it is not excluded that this strategy is a part of the option collar strategy, which is composed of sell call+ stock +buy put. Through the option collar strategy, shareholders can hedge against the downside risk, which is to reduce the pullback for institutions.

Will Microsoft fall to 250? Should the stock be liquidated?

This is where I find the strategy 4 order tricky. From now the price falls to 250, which means the stock price falls about 12%, back to March. In fact, compared to last year's sharp pullback is more tolerable, not to mention for the trader is also afraid of the cost of time, specially traded sell call.

In addition, there is a trader who intends to take an order at 260. So I doubt the magnitude of the Microsoft pullback, and it may not even reach 260. This year's Q1 was already evident, with gains often exceeding expectations and losses often falling short, except in bank stocks. But when it comes to stocks that have fallen like the sky, institutions are confident enough not to hedge with a sell call or sell put.

Therefore, the trend inference behind strategy 4 large orders has no impact on the traders who hold shares, and the traders who buy call can learn strategy 3 for defense.