Market Rebellion Co-Founder Jon Najarian joined Fox Business’ Liz Claiman this afternoon to talk about a trade he made today. Bullish long call option spreads, bought out-of-the-money in a stock that reports earnings tomorrow.
That stock: Microsoft.
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Unusual Options Activity in Microsoft (MSFT) Ahead of January 24th Earnings
When Jon Najarian makes a big, bold move like this, it’s often because he’s detected big institutional buying, and he’s following the trail. In this case, Market Rebellion’s Heat Seeker ® algorithm detected not one, not two, but three back-to-back reports of unusual options activity in Microsoft.
|MSFT||January 27th||Bullish Call Spread||+$260/-$265||10,000||$0.29/Spread|
|MSFT||January 27th||Bullish Call Spread||+$257.50/-$262.50||4,385||$0.58/Spread|
|MSFT||January 27th||Bullish Call Spread||+252.50/-$257.50||3,413||$1.06/Spread|
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Everything you’ve ever wanted to know about Unusual Options Activity—in one convenient insider’s guide.
How These Spreads Pay Out
Option spreads offer a lower cost and potentially lower risk in return for a capped maximum gain. In this case, these three option spreads offer a max return that is many multiples more than the purchase price.
In this case, all three spreads offer a maximum value of $5.00 if the stock expires at or above the strike price of the short leg — meaning these spreads offer a potential return of between ~5X (the $252.50/$257.50 spread) to >17X (the furthest from the money, $260/$265 spread).
The caveat, however, is that if Microsoft were to rise far above the strike price of the short leg, the buyer’s profit would be capped. Microsoft goes to $300 per share? Your profit is capped at $265.
What option spreads sacrifice in potential value, they make up for in practicality. Long option spreads help to mitigate some of the potential IV crush that takes place during earnings, and they lower the price of the overall trade. That’s likely why these buyers were so willing to purchase thousands of them, short-dated, ahead of a critical earnings event.
With renewed bets on OpenAI and ChatGPT, a potentially slowing consumer, and a cloud sector in full focus, Microsoft will have plenty to contend with this earnings season. Let’s see if this smart money buyer has struck gold.
There’s More Where That Came From
Unusual options activity is treasure trove of institutional trade ideas — and we see every single one of them. In other words, Microsoft isn’t the only earnings bet that the institutions made this week. And we don’t just report the order flow — our licensed CMTs and professional options traders craft custom-made options trades based on the technicals, complete with entry points, exit points, trigger levels and more.