Microsoft (MSFT) Shares lost 12% on Thursday. It is now down 22% from its July 2025 all-time high of $555.45.

While the megacap’s quarter was a good one — revenue and earnings were $1 billion and 23 cents higher, respectively, than Wall Street estimates — its guidance for the future was softer than expected, prompting the big selloff.

Interestingly, while Microsoft says its Azure cloud computing business would grow revenue by 38% in 3Q 2026, investors don’t think that’s enough given the heavy capital investment it’s made over the past two years.

In the second quarter alone, its capital expenditures were $37.5 billion, $800 million more than Wall Street’s estimate. According to Barron’s, Microsoft, Meta Platforms (META), Alphabet (GOOGL) and Amazon (AMZN) will spend $550 billion on AI by 2026.

Investors are clearly concerned that there is no pot of gold at the end of the rainbow.

In options activity yesterday, Microsoft had the three highest Vol/OI (volume to open interest) ratios among the 1,328 unusually active options. All three were calls.

Satya Nadella has done an excellent job since taking over the top job in February 2014 – MSFT shares are up 1,104% in the 12 years he’s been in the top job – so I don’t think now is the time to worry that he’s lost his touch or vision for the company.

If you’re bullish on the long-term, this correction is a good time to make some targeted bets on its stocks, using these three calls expiring a week before Christmas as targets.

Have an excellent weekend.

The bullish call spread is a bullish option strategy with limited losses and limited profits. The bet is made on the assumption that you expect the stock to rise in value during the duration of the call.

The strategy involves buying a call option and selling a call option at a higher strike price. The short call reduces the cost (net debit) of the long call.

So based on yesterday’s three unusually active call options, you have 3 possible combinations: $525 and $575, $525 and $625, and $575 and $625.

Let’s consider each of them.

In the first example above, you have a difference of $50 between the two strike prices. The long $525 call costs $20.25 ($2,025), while the short $575 call generates premium income of $11.20 ($1,120) for a net debit of $9.05 ($905), or 2.09% of its share price.

The most you can lose is $905, while the most you can gain is $40.95 ($575 strike – $525 strike – $9.05 net debit). The maximum profit percentage of 452.49% ($40.95 / $9.05) is very healthy, as is the risk/reward ratio of 0.22 to 1.

Of course, this explains the low profit probability of 22.3%, which is the probability that the stock price at expiration in December will be above the breakeven of $534.05 ($525 long call strike price + $9.05 net debit).

The expected move over the next 10.5 months is 19.42%, a gain of $84.15, which puts the stock’s top price at $517.67 at expiration, about $17 below breakeven.

Here we have a $100 spread between the two strike prices, with a net debit of $13.85 ($1,385), which is 3.2% of the share price. This is still relatively cheap. The bet provides a maximum profit that is 169.53 percentage points higher than the previous example, while the risk/reward ratio is six basis points lower at 0.16 to 1.

Of these two, despite the much higher maximum profit percentage, I would go with the combination of $525 and $575 because the $905 spend is 35% lower and offers a higher probability of profit.

The latter has the lowest net debit of $5.10 ($510) and the highest maximum profit percentage of 880.39%. If you are really concerned about your payout per bet, this may be of interest, but given the high balance of $580.10, your odds of success are slim.

Long ratio call extension, also known as call ratio rollback, involves selling one call and buying two calls of a higher strike price, all with the same expiration date. It is essentially the combination of a low call spread and a long call.

The strategy is a bet that the stock price or implied volatility will make a sharp move higher at expiration. While I’m generally bullish on the medium to long-term direction of MSFT stock, I’m not sure we’ll see a strong move to the upside in 2026.

Perplexity describes this strategy as a “leveraged moonshot,” so the odds of success aren’t great.

From the three unusually active options, we have several possible combinations. The important part is that the long call should be the highest strike price of the bearish call spread. Also, the combined deltas of the two long calls should be roughly equal to the delta of the short call.

The delta of the $525 call is 0.3084. Therefore, if this is the only short call, the delta of the two long calls should be approximately 0.1542 each. The deltas for the $575 and $625 calls are 0.1989 and 0.1265, respectively. Of the two, the $625 call delta is closer, so let’s go with that.

Selling the $525 call generates premium income of $19.90 ($1,900). Buying two $625 calls costs $13.40 (2 * $6.70 price), or $1,340, for a net credit of $650.

The maximum loss would be $9,350 ($625 strike price – $525 strike price – $6.50 net credit) if the stock price at December expiration was at the higher strike price of $625. The maximum profit is unlimited.

Since there is a net credit instead of a net debit, there are two equilibrium prices.

The lower $525 strike price balance is $531.50 ($525 strike price + $6.50 net credit), while the $625 upper strike price is $718.50 ($625 strike price + maximum risk = $100 difference in strike prices – $6.50 net credit).

We will now use the $575 call as a long option with the $525 short option.

Selling the $525 call generates premium income of $19.90 ($1,990). Buying two $575 calls costs $23.00 (ask price of 2 * $11.50), or $2,300, for a net debit of $310.

The maximum loss would be $5,310 ($575 strike price – $525 strike price + $3.10 net debit) if the stock price at December expiration was at the higher strike price of $625. The maximum profit is unlimited.

Since there is a net debit, there is only one equilibrium price. It is $678.10 ($625 strike price + maximum risk = $50 difference in strike prices + $3.10 net debit).

Finally, we will use the $575 call as short options and two $625 calls as long options.

Selling the $575 call generates premium income of $11.70 ($1,170). Buying two $625 calls costs $13.40 (2 * $6.70 price), or $1,340, for a net debit of $170.

The maximum loss would be $5,170 ($625 strike price – $575 strike price + $1.70 net credit) if the stock price at December expiration was at the higher strike price of $625. The maximum profit is unlimited.

The break-even price is $676.70 ($625 strike price + maximum risk = $50 difference in strike prices + $1.70 net debit).

Bottom Line: If it were me betting on one of the three moments of the moon, I’d probably go with the last one, mainly because losses on the short call don’t start until $575 instead of $525, which gives you some wiggle room if the stock jumps, but not enough to break even.

As of the date of publication, Will Ashworth had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com