Now that's leverage
I noticed a tweet from Benzinga a few days ago about how option volume surged in Microsoft October 30 calls. Here is the post.
Anyway, the trade - as reported by Mike Khouw on CNBC's Options Action was a strategy called "call stupid". The trade involved buying 19,000 of the October 30th, 49 strike calls and leveraging that play with an additional 19,000 buys of the 50 strike calls. The cost as reported was $0.50 (for the pair). The dollar cost of the play equaled: 38,000 x 0.50 x 100 = $1,900,000.
The trade was clearly focused on the earnings of MSFT (they reported yesterday). Better than expected and the buyer was a winner. As expected or lower earnings and 1,900,000 would head out the window....
So what happened?
Well MSFT reported earnings that "crushed" expectations. The stock price is currently up 10.6% to $53.16.
How are the options doing?
Well the 49 strikes are trading at $4.15 while the 50 strikes are at $3.30.
So the the profit on the "stupid call" trade....
19,000 x $4.15 x 100 = $7,885,000
19,000 x $3.30 x 100 = $6,270,000
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Total Value $14,155,000
Total Cost $ 1,900,000
-----------------
Total Profit $12,255,000
Not a bad return.....for a stupid trade.
I would rather be lucky stupid, than smart.
PS. The SEC might have some questions to the "stupid call" buyer, but....