Someone Just Paid $10M for Microsoft Puts at the Ask. Michael Burry Went Long the Same Day.

Key Concepts

• Options Activity: The buying of put contracts to hedge positions or speculate on downward price movement.
• Implied Volatility (IV): The market's expectation of future price fluctuations; higher IV typically increases option premiums.
• Short Delta: A position that profits when the underlying asset's price decreases.
• Execution at the Ask: Buying an option at the current market offer price, indicating aggressive buying pressure.
• Facilitation Trade: A trade executed by a bank's trading desk to accommodate a client, often contrasted with screen-based retail or prop firm activity.
• Earnings Premium: The extra cost associated with options that expire during an earnings announcement due to expected volatility.

1. Market Context and Microsoft’s Position

Microsoft is approaching its earnings report on April 29th, trading at approximately $419. The stock has experienced significant volatility, currently down 13% year-to-date and 24% from its July 2025 all-time high, despite a 21–22% recovery from March lows. The company sits at the critical intersection of cloud computing, AI, and software—a sector that has faced recent downward pressure.

2. Unusual Options Activity

The discussion highlights two significant, unusual trades executed on the options tape:

• May 22nd Cycle (415 Puts): 996 contracts were purchased at the ask price of $17.10. This trade was executed on the screens rather than through a bank facilitation desk, suggesting aggressive positioning.
• May 29th Cycle (410 Puts): A larger trade of 5,722 contracts (totaling roughly $8 million) was executed.
• Analysis: These trades are viewed as "noise" rather than a definitive signal of a crash. They are likely either hedges for existing long stock positions or speculative "short delta" bets following the negative sentiment in the software sector triggered by recent earnings from IBM and ServiceNow.

3. Earnings Performance Trends

The speakers reviewed Microsoft’s historical reaction to earnings:

• Positive Momentum: In April and July 2025, the stock rallied 7–9% following strong EPS beats.
• Shift in Market Focus: By October, the market shifted its focus from "what have you done" to "how much will it cost," specifically scrutinizing fiscal 2026 capital expenditure (capex) related to AI infrastructure.
• Current Sentiment: Companies that demonstrate clear demand for AI services are being rewarded, while those that fail to provide transparency (e.g., IBM’s refusal to release its AI book of business) are being punished.

4. Strategic Perspectives and Methodologies

• The "Burry" Factor: Michael Burry’s disclosure of long positions in Microsoft, Adobe, Autodesk, PayPal, and Salesforce is dismissed as "noise" by the analysts. While it aligns with the view that these names are currently "beaten down" and offer value, the analysts emphasize relying on technical tape activity over following individual investor disclosures.
• Analyst’s Trade: Jamal (the analyst) reveals he is currently "long a call spread" (425/450 strikes) in the regular May cycle. He chose this cycle specifically to avoid the high earnings premium associated with the immediate post-earnings window, while still maintaining exposure to a potential upside move.

5. Notable Quotes

• "This is noise... this is not a trade that signifies that Microsoft is going down... this is likely somebody who is maybe even hedging or maybe they're picking their chance to get short Microsoft." — Jamal, regarding the unusual put activity.
• "I don't really pay attention to people like Michael Burry who are making big positions, unless they're doing it in the same direction as me." — Jamal, on the relevance of institutional disclosures.

6. Synthesis and Conclusion

The current options activity in Microsoft reflects a market that is cautious and hedging against potential downside, influenced by broader weakness in the software sector. While the stock has faced technical damage, the consensus is that Microsoft remains a massive, liquid name with significant opportunity. The upcoming earnings report will be a litmus test for whether the "AI trade" remains viable and whether the market will continue to prioritize long-term AI infrastructure investment over short-term software performance metrics.