Microsoft Ramp-Job
By Bill Bruns (bbruns@sir-inc.com)
4/19/2002 9:01 AM ET
For those of you may have been unaware, last night after the close of trading, MSFT laid a proverbial egg. In addition to missing Wall Street earnings per share estimates by two cents, the firm also fell short on the revenue side and lowered its growth outlook.
Sounds pretty bad, doesn't it? As it turned out, this was pure music to the ears of several brokerage firms, heretofore known by the unflattering CNBC moniker "penguins." Without naming names, news that Penguin 1 upgraded MSFT from a "neutral" to a "buy" rating hit the Dow Wire this morning at 5:09 a.m. eastern time. Within the hour, Nasdaq futures were already trading in positive territory. Penguin 2 joined the upgrade party at 8:06 a.m. eastern time by raising MSFT from a "buy" to a "strong buy."
So the question becomes: what was the impetus for the upgrades? Was it the earnings miss, the revenue miss, or the lowered outlook that caused individuals at these firms to scream "Slowing business, sky-high P/E, I've got to get more of that!"? Maybe I'm being a bit too harsh, but this has all the ingredients of an expiration day ramp-up job. As of last night's close, open interest at the out-of-the-money April 55 put strike stood at 63,779 contracts (with an 11,500-contract add yesterday - prior to earnings, as premium sellers were enticed by the rich premiums of 84-percent implied volatility versus a one-month historical volatility of only 41 percent). If MSFT just manages to close above the 55 level, then all of these contracts will expire worthless, allowing those that sold premium to enjoy a collective sigh of relief. Don't be taken in by the upgrades (on this expiration day). This is just how the game is played, plain and simple.
- Bill Bruns (bbruns@sir-inc.com |
