Traders bet Microsoft’s big run is about to hit a speed bump

Microsoft has been on a tear this year, but some traders are betting the hot stock is showing signs of a slowdown.

The tech giant has surged nearly 23 percent since January and is one of the best performing Dow stocks this year. However, according to Dan Nathan of RiskReversal.com, the stock’s rally could be losing steam.

Shares of Microsoft are expected to move around 4 percent in either direction when it releases fourth-quarter earnings after the bell on Thursday. That’s nearly double its historic average.

On Wednesday, the tech company saw three times its average daily call volume. Within the surge of activity Nathan noted many traders using a rolling options strategy to capture potential gains in the stock.

“If someone was long [Microsoft] they’re selling calls against it to kind of take in a little premium as options premiums are elevated into the earnings,” he explained Wednesday on CNBC’s “Fast Money.”

As an example, Nathan pointed out a seller of the Aug. 3 weekly 110 calls when the stock was trading at $105. This is a bet that shares of Microsoft will rally nearly 5 percent in the next month but find a ceiling around the $110 level.

Additionally, Nathan highlighted the stock’s $97.50 level which is “the intersection of [an] uptrend for the one-year and the breakout level from earlier in the year” as potential downside support.

However, CNBC trader Pete Najarian believes the recent surge of investor optimism in the stock is indicative of more gains ahead.

“I think [Microsoft is] going to 110 quicker than people think. It has made this move to 100 [and] stalled for quite some time,” he explained. “[But] the buying that we’ve seen over the last couple of weeks has been absolutely incredible.”

Shares of Microsoft hit a new all-time high of $105.95 on Tuesday and currently have an average buy rating and price target of $113.55, according to Factset analysts.

Microsoft was trading lower on Thursday afternoon around $104.71.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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