Microsoft Corp. (NASDAQ: MSFT), one of the equities consistently seeing the heaviest daily option volume, saw some heavy options activity right out of the gate Monday morning.
The January 2012 37.50-strike call is easily the site of heaviest call volume so far, with 39,660 contracts trading on open interest of just 521. Eleven minutes after the opening bell sounded, a block of 38,563 contracts crossed the tape, trading one penny off the ask price at $1.55 per contract.
This means the block was worth nearly $6 million, and that it was probably initiated by call buyers. The stock was trading at $28.44 at the time, making this option out-of-the-money by 32% (but with more than two years until expiration).
The maximum risk of a long call -- LEAPS or otherwise -- is the premium paid (plus commissions), while upside is theoretically unlimited above the strike price. Some LEAPS investors use the options as a stock substitute, but since these options are so far out-of-the-money, delta is at 26%, meaning it will not move step-by-step with the stock. Rather, the call should gain 26 cents for every $1 increase in the underlying equity.
Beth works for The Options News Network (www.ONN.tv), which provides daily stock and options commentary. The above comments are not intended as trading advice.
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