Microsoft options show investors positive on post-earnings

Thu Jan 28, 2010 3:46pm EST

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(Updates options trading volume, prices, adds implied volatility)

NEW YORK Jan 28 (Reuters) - Options activity suggests investors expect shares of Microsoft Inc (MSFT.O) to gain once it reports quarterly results after the bell on Thursday.

Activity leaned to the positive, although the market's sharp decline Wednesday dented that optimism.

With less than half an hour of trading left, Microsoft option volume was three times greater than it average daily turnover with about 252,000 calls and 118,000 puts traded, according to option analytics firm Trade Alert.

The average put-to-call ratio over the last 30 days has been 0.57, said Interactive Brokers Group market analyst Andrew Wilkinson.

"It's cautious optimism. There aren't as many puts being traded as normally against the calls now, but not by much," Wilkinson said.

Wall Street expects Microsoft to post $17.9 billion in revenue for the second quarter, up about 7 percent from a year ago. The consensus estimate is 59 cents per share, according to Thomson Reuters I/B/E/S.

Some speculative call buyers were betting on a rally, based on positive earnings by tech majors Google (GOOG.O) and Apple (AAPL.O) last week.

Microsoft shares were down 0.7 percent at $29.45 a share.

The most active February call strikes were the out-of-the-money $31 and $30 strike prices, said Jon Najarian, co-founder of optionMonster, a Web information site.

Joe Kunkle, a founder of Web site OptionsHawk.com, noted a slight bullish bias on the at-the-money options along with some buyers of the Feb $30/$31 call spreads, which would suggest expectations for a small pop in shares after earnings.

Microsoft February implied volatility stood at 38 percent compared to March implied volatility of 31 percent and a historic reading of 21 percent on the stock, he said.

Implied volatility, a key component of an options price, measures the expected magnitude of share price movement.

Market participants were concerned that the steep decline in stocks would weigh on the software giant despite solid results.

Wall Street was down more than 1 percent, with the Nasdaq falling more than 2 percent, weighed by outlooks from technology companies and concerns about Greece's heavy debt load.

(Reporting by Angela Moon; Additional reporting by Doris Frankel in Chicago, Editing by Chizu Nomiyama)

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