Call buyers LEAP into Microsoft (MSFT)

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Microsoft options activity 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.

Symbol Lookup
IndexesChangePrice
DJIA+150.2510,058.64
NASDAQ+24.822,150.87
S&P 500+13.781,070.52

Last updated: February 09, 2010: 09:15 PM

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