Shares of tech giant Microsoft (MSFT) have rebounded nicely with the overall stock market in recent weeks. One trader sees the stock trending down next.
That’s based on the December $300 put. With 122 days until expiration, 4,011 contracts traded compared to a prior open interest of 116, for a 35-fold rise in volume on the trade. The buyer of the puts paid $21.28 to bet on a drop in shares.
Microsoft recently traded for about $292, so shares are already about $8.00 in-the-money. With a 52-week low of about $242, a retest of that low in the coming weeks could lead to the option returning a triple-digit return.
Shares of Microsoft are now flat over the past year, a slight outperformance relative to the S&P 500. With revenue up 12 percent and earnings up 2 percent in a slowing economy, the company will likely continue to move higher in time, but it could be susceptible to a short-term swing lower.
Action to take: Investors may like shares, provided they wait for another pullback, say to the $275 range. The stock yields about 0.9 percent right now, and the company has a history of increasing its dividend payout in time.
For traders, the put options could deliver great returns on a drop, and being in-the-money have some downside protection if shares trade around their current price or slightly higher. Look for mid-double-digit returns here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.