Microsoft rallied sharply on strong quarterly numbers, returning exponential gains on positions opened three months ago.
On July 31, Investitute’s tracking systems detected the purchase of 5,000 November $75 calls for $1.98 as part of a bullish roll with shares at $72.80. This was clearly a new position, as open interest in the strike was just 108 contracts before the trade occurred.
Those calls traded for $11.03 today, more than 5.5 times their purchase price. The stock rose 18.1 percent in the same time period, illustrating how options can far outperform their underlying shares. Investitute co-founder Pete Najarian cited even more bullish option activity in Microsoft on CNBC’s “Halftime Report” this afternoon.
Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.
MSFT jumped 6.41 percent today to close at $83.81 after reaching a lifetime high of $86.19 this morning. The software giant blew past earnings and revenue estimates after the market closed yesterday.