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Call Traders Crowd Apple Rival as Bull Signal Flashes

Microsoft stock fell victim to September headwinds

Managing Editor
Oct 1, 2021 at 10:42 AM
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Earlier this month, tech conglomerate Microsoft Corporation (NASDAQ:MSFT) announced the launch of a $60 billion stock repurchase program and hiked its dividend by 11%, with quarterly payouts moving up to 62 cents per share. These updates have the equity continuing its multi-year charge up the charts, but shorter term, the blue-chip stock has fallen victim to September seasonality. Despite boasting a nearly 34% year-to-date lead, and Aug. 20 record high just above $305, the Apple (AAPL) rival has consolidated below $300 this month, even dropping below $290 on Sept. 20. Despite the 1.3% pullback for September, the dip has taken MSFT to a trendline that, if past is precedent, could lead to a renewed bounce from the stock.

Earlier this month, tech conglomerate Microsoft (MSFT) announced the launch of a $60 billion stock repurchase program and hiked its dividend by 11%, with quarterly payouts moving up to 62 cents per share. These updates have the equity continuing its multi-year charge up the charts, but shorter term, the blue-chip has fallen victim to September seasonality. Despite boasting a nearly 34% year-to-date lead, and Aug. 20 record high just above $305, the Apple (AAPL) rival has consolidated below $300 this month, even dropping below $290 on Sept. 20. Despite the 1.3% pullback for September, the dip has taken MSFT to a trendline that, if past is precedent, could lead to a renewed bounce from the stock.

On Thursday, MSFT came within one standard deviation of its 40-day moving average, after staying well above this trendline since May. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, at least nine similar signals have occurred in the past three years. The equity enjoyed a positive return one month later in 88% of those cases, averaging a 5% gain. From its Thursday close of $299.56, a similar move would put MSFT just shy of $315 -- a fresh record high.

MSFTcotww40MA

Options traders seem to be playing the pullback with calls. The equity landed on Schaeffer's Senior Quantitative Analyst Rocky White's list of stocks that have attracted the highest weekly options volume within the past two weeks, with new names added to the list highlighted in yellow. In the past 10 days, 488,912 calls and 258,933 puts were exchanged. The most popular during this time period was the September 305 call, followed by the 300 call in the same monthly series.

weeklyMAOMSFTchart

Lastly, just like back in April when we last checked in on Microsoft stock in our Chart of the Week series, volatility expectations point to attractive-priced premium. This is per the stock’s per the stock’s Schaeffer's Volatility Index (SVI) of 19%, which stands in the 16th percentile of its annual range, suggesting that options players are pricing in lower-than-usual volatility expectations at the moment.

Subscribers to Chart of the Week received this commentary on Sunday, September 26.
 

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