Cautious strategy at work in Microsoft
David Russell | firstname.lastname@example.org
optionMONSTER's Depth Charge monitoring system detected the purchase of 10,000 January 27 puts for $1.05 and the sale of 30,000 January 16 puts for $0.11. The trade accounted for almost half today's volume in the software giant, which normally sees about 62,000 contracts in a single session.
Known as a ratio spread, the cost $0.72. It will earn a maximum profit of 1,428 percent if MSFT closes at $16 on expiration, with gains eroding below that level because of the larger position in the short puts. MSFT hasn't been under $16 since the first half of 2009.
Ratio spreads are designed to leverage moves of specific magnitude. They're often used as hedges by investors who own a stock and would be willing to buy more in the event of a significant decline. (See our Education section)
MSFT is up 0.87 percent to $30.97 in afternoon trading. It rallied from $26 to $32 in the first three months of the year but has been drifting lower since then. The company is scheduled to report its next earnings results after the bell on July 19.