Skip to main content

Morning Update

This morning almost 9000 Microsoft June 36 call options were purchased within minutes of each other around 9:30am for about $0.27. Currently, Microsoft is trading at about $35 but opened for the day at $34.85. This transaction is a bullish bet that Microsoft stock will rise above the breakeven point of $36.27 by the 21st of June, equivalent to an increase of about 4.1%

This trade occurred on the tail of MSFT releasing its new all-in-one consul Xbox One. MSFT already had a thick slice of the consul market, and this new product offers more options than its competitors with capabilities of TV, sharing, and music capabilities, in addition to gaming. The reception of the new Xbox was not particularly astounding to stockholders, indicated by the drop in stock price, but this drop was quickly restored to previous prices. Another reason why holding Microsoft might be a good move is because Microsoft will release their fourth quarter dividend dates in mid June, probably prior to the expiration of the call options. If the dividend amount is particularly high, this could cause demand for Microsoft stock to increase and therefore raise the value of the options.

On a broader scale, Microsoft is starting to gradually change their business strategy and focus on their profitable segments, enterprise/small business customers and cloud computing, while the PC industry continues to shrink. The enterprise and small/mid-sized business area of business actually generates two-thirds of Microsoft’s revenue, and is a growing segment that will continue to bring in a large chunk of sales. According to some analysts, within the next few years Microsoft will gain dominance in the cloud computing field and draw the focus away from PC’s. This is good news for Microsoft stockholders as the company is taking actions to become a leader in these growing, profitable areas of their business and redefining their brand away from the struggling PC industry.

Overall, Microsoft presents some solid aspects that point towards growth within the next few months. A bet on 4.1% growth before the 21st does not seem like an awful guess in lieu of the current position of the company, and for that reason this morning’s transaction seems like an OK move. However, this is still considerable amount of growth and therefore there is a moderate amount of risk associated with it. On a longer term scale, Microsoft is changing their style of business to accommodate the new technological environments; while their smart phone and tablet segments are still struggling, their cloud and small business seem to be doing very well. Microsoft’s stock had been stagnant for year, but has broken out to the upside in 2013. These calls offer an opportunity to play the newfound upward momentum with only a fraction of the risk of owning the shares.

Comments

Blogger said…
Bluehost is ultimately one of the best hosting company with plans for any hosting needs.

Popular posts from this blog

Wake Me Up When September Ends

The fiscal year for the U.S. Government ends September 30th, 2017. Which is something market participants could care less about if not for, sometime near that date, Congress needs to raise the debt ceiling. Missing that deadline would result in a self-inflicted financial wound that would send shock-waves throughout global markets.  The U.S. Government has been paying off debt since the Andrew Jackson administration without missing a single payment. Raising the debt ceiling is a routine vote.

In fact, with the polarized Washington we have seen in recent years, it is happening a lot more frequently, as Congress has only once passed a budget in the past eight years. In lieu of a budget, Congress passes what is known as a continuing resolution.  A continuing resolution is a type of legislation in which Congress decides to let last year’s budget continue as this year’s budget. Nevertheless, a continuing resolution is incomplete, as it does not allow for the government to spend the money a…

I would like to bet ten tens on the tenth horse in the tenth race, please.

"I would like to bet ten tens on the tenth horse in the tenth race, please."


Last summer, on a warm cloudy day June 11, 2016 in Elmont New York, a good friend of mine (Rob) confidently walked up to the cashier at Belmont and spoke those famous words.  Ten Tens on Ten in the Tenth Race.  In fact, it had been decided it months earlier. We had been discussing hosting his bachelor party in New York, go to the Belmont Stakes, and watch a Yankees vs Tigers game and Rob convinced the group to go to New York by proudly proclaimed his prophecy.  I had almost forgotten about this bold prediction when I witnessed him at the register, but when I looked up, and saw Flintshire, the 10th horse in the race upcoming race was the favorite.  “What could possibly go wrong?”  I thought to myself (an options trader who bought a racing program attempting to handicap and gain an ‘edge’ in the previous nine races unsuccessfully).  I went to a pretzel vendor and changed 5 twenties into ten tens, wal…

Is the KCJ Foreshadowing a 2008 Repeat?

The CBOE Correlation Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ measures the implied movement of the S&P 500 components options, compared to the implied movement of the S&P 500 index options. Simply put, the higher the number, the more likely all stocks are going to move together. Conversely, a low number will be characterized by sector rotation, and flat markets; one sector moves higher, another moves lower. 
Correlation, for lack of a better term, is correlated with volatility. Not surprisingly, 30-day S&P 500 historical volatility is near the low level of 6.5%. Currently at 33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but not lower than where Lindsay Lohan was in 2007). 
So far this year, the market has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector rotation. As the summer hit, FANG has slowed with GOOGL and AMZN hitting…