Microsoft Call Options Flying Just Prior to Appeals Court Ruling

In recent weeks investors have been trying to time the ruling in the Microsoft(MSFT Quote) antitrust case by the U.S. Court of Appeals by playing a game of pitch and toss in the options market.

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Rumors that the judicial body was ready to release a decision have been buffeted about frenzied trading floors every Tuesday and Friday over the course of the past six weeks. (The court generally releases decisions on those days.) As a result, option orders rang in at a quickened pace as investors, both retail and institutional, sought to cash in on the outcome.

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Before the favorable decision for Microsoft was released today, there was some activity in the August 60 puts , with over 5,000 contracts changing hands on open interest of 12,511. The premium, or cost of the option, was listed at $1 ($100 per 100). However, just prior to the announcement, investors began buying call options aggressively, and continued to buy up until the halt in trading. (A call option is the right, but not the obligation, to buy a stock at a specified price by a certain date known as expiration.)

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The options activity prior to the announcement seems to indicate that the smart money sensed a favorable decision was imminent and took advantage of it. "I'll call it an astonishing coincidence that thousands of MSFT calls, and millions of shares of the underlying stock were purchased just before that news broke. Some skeptics may call those trades fast money, insider pickoffs; others may call it good fortune," Jon Najarian, head of Mercury Trading, wrote in his daily report. "Either way, it's like my high school football coach used to say, 'I'd rather be lucky than good.' "

When trading resumed at 2:45 p.m. EDT, the premiums on the July call options blew up as investors scratched and clawed for a stake in the software giant. The July 75 calls traded nearly 10,000 calls on open interest of 57,210. The premium on those calls has risen dramatically today, going from $1.10 ($110 per 100) at the open to $2.25 ($225 per 100). As orders continue to flood in, look for the premiums to continue to move higher. Microsoft shares closed up $1.59, or 2.2%, at $72.73.