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Option investors look to hold on to exposure in the tech market
Beth Gaston Moon is the Senior Editor for the Options News Network. Beth was a member of the research department at Schaeffer's Investment Research for more than a decade. As Jud Pyle pointed out yesterday, it’s the season for rolling out option positions. With January options expiration looming on Friday, option traders who want to keep long or short exposure to a particular stock or ETF are simply shifting their strategies to a later-dated series.
We saw this phenomenon in a couple of major technology stocks yesterday – Microsoft (NASDAQ:MSFT) and Research in Motion Limited (NASDAQ:RIMM).
Microsoft option traders were rolling a short call position up and out, possibly as part of a standing covered call strategy. Specifically, the January 27 calls appear to have traded in large blocks near the $2.60 level and the April 29 calls traded closer to the $2.00 mark.
In other words, the traders were closing their front-month, in-the-money options and simultaneously opening new short calls at the April 29 strike, paying about 60 cents for the overall spread. The 29 strike is still out-of-the-money, meaning this investor may expect a slight decline in MSFT during the next few months.
MSFT earnings are expected after the close on January 28th, with the Street expecting the software giant to have recorded 58 cents per share in the latest reporting period. The February 30-strike straddle (near-the-money) closed at $2.05 yesterday, pointing to an expected move of 6.8% between now and February 19th.
In other news, MSFT announced a $250 million, three-year venture with Hewlett-Packard (NYSE:HPQ) involving plans to work on solutions to improve “cloud computing.”
RIM, meanwhile, doesn’t report earnings until mid-March, having just announced in late December. But the stock was not immune to roll strategies ahead of January expiration. Just before 11:00 a.m., spread trading started across the January 65 and February 65 calls.
Investors paid between $1.05 and $1.10 for the call spread, selling out of the January options and opening fresh contracts in the February series. By the day’s end, more than 11,600 contracts traded at the February strike (on open interest of 16,741) and the January strike had seen almost 27,000 contracts trade on existing open interest of nearly 33,000.
RIMM ended the day on a positive note, up 3.7% at $65.54, nudging these options into in-the-money territory.
For more on Microsoft and Research in Motion:
Soak in Some Real Estate, Smartphones for the New Year
Call Spread Strategies for Microsoft (MSFT) Bulls and Bears
For more on the rolling strategy:
Two Traders, One Strategy Steve and Jared take a look at risk management strategies on the OH platform.
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