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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.

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