Investors Buy Long-Dated Microsoft Call Options In Huge Volumes - A Very Bullish Signal

Institutional investors have piled into long-dated (almost 6-month out) Microsoft Corp (MSFT) call options at a 44% higher call strike price. That indicates they are extremely bullish on MSFT stock for the near term. Moreover, analysts' price targets are also well over today's price.

MSFT is at $402.00 in midday trading on Wednesday, June 10, after peaking at $460.52 on June 1. However, the Barchart chart below shows that MSFT has been basically flat for the past 2 months. It released its fiscal Q3 earnings on April 29, but the stock has been treading water since then.

Given its strong free cash flow (FCF) outlook, MSFT stock could have much further to go. More on this below.

The huge call options trading can be seen in Barchart's Unusual Stock Options Activity Report today. The trade is listed as the top stock with unusual volume.

For example, the report shows that the MSFT call option has had over 120x the prior number of contracts outstanding. In addition, the strike price is $580.00, or over 44% over today's price. 

The expiry date is November 20, 2026, 163 days from now (5.4 months away). That indicates these call option buyers are extremely bullish on MSFT stock over the near term.

MSFT calls expiring Nov. 20, 2026 - Barchart Unusual Stock Options Activity Report - As of June 10, 2026

Moreover, the call option premium is not too high, just $4.28 at the latest price. That is only 1% of today's price, which does not give options sellers much income during that period.

It means that MSFT has to rise to over $584.28 (45.3%+) over the next 5 and a half months for this call option to have any intrinsic value.

Can this happen? Let's look at Microsoft's fair value.

Price Targets for MSFT Stock

I discussed MSFT's value in a June 2 Barchart article on Microsoft and a May 11 article, “Microsoft Stock Still Looks Undervalued Based on FCF Projections, Despite Higher Capex."

I showed that Microsoft can be expected to generate almost $100 billion in free cash flow (FCF) next fiscal year ending June 30, 2027. That was based on revenue projections of $383.93 billion, operating cash flow margins of 53.5%, and capex of $107 billion.

However, since then, analysts have raised their revenue projections to $384.83 billion. That could also push its operating cash flow (OCF) margin to at least 54%. So, here is the new FCF projection:

  $384.83b x 0.54 = $207.8 billion - $107 billion = $107.8 billion FCF

As a result, using a 2.5% FCF yield (the same as multiplying FCF by 40x), its market value could be over $4.3 trillion:

  $107.8 / 0.025 = $4,312 billion market value

That is $1.3 trillion higher than today's market cap of $2.988 trillion, as calculated by Yahoo! Finance. This implies the stock price is worth 44.3% more:

  $4,323b / $2,998b -1 = 1.443 -1 = +44.3% upside

That sets a price target (PT) of $580.09 per share (i.e., $402 x 1.443).

So, no wonder investors are willing to buy MSFT calls at a strike price of $580.00! They believe that the market will eventually see its underlying value at this level.

Other analysts agree as well. For example, Yahoo! Finance reports the average PT of 56 analysts is $560.95, and Barchart's mean survey PT is $554.28. Moreover, 31 analysts surveyed by AnaChart, which tracks recent analyst write-ups, show an average PT of $575.69.

The bottom line is MSFT still looks deeply undervalued here, based on strong FCF projections for Microsoft. This is despite higher capex levels due to its AI investments.

This may explain why institutional investors are piling into long-dated MSFT calls today.