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Microsoft to Rise Above $40? Options Traders Think So

Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action."

On Wednesday, as Microsoft fell for the fourth day in a row, we noticed options traders stepping into the market to buy long-dated calls.

The biggest trades of the day were the purchase of 12,000 Jan. 40-strike calls for $0.59 and the purchase of 7500 Jan. 27-strike calls for 4.80. The 40-strike calls will turn a profit if MSFT is above 40.59 at expiration, a 35 percent move higher, and the 27-strike calls will make money if MSFT is above 31.80, a 5 percent move higher.

(Track Microsoft here.)

Why the bullishness?

Well, on Wednesday MSFT touched its 200-day moving average, which stopped the stock's decline and acted as support. These option trades show traders are willing to bet that this is a turning point in the stock and that it will see a sharp rally into 2013.

Microsoft has several potentially market-moving events ahead on its calendar for October: On the 18th it will release earnings, and on the 26th the company will release the new Windows 8 operating system. (Read More: Windows 8 Being Pushed Out the Gate Prematurely: Report.)

We see buying calls into this week's sell-off as a great way to gain exposure to Microsoft's potential upside ahead of a major product release, while limiting downside risk and keeping cash outlays to a minimum.

Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."

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