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Wells Fargo

(WFC) - Get Free Report

continued to rally Tuesday, piling onto sharp gains of the last couple of sessions, as call action in the stock's options picked up.

Wells rallied Monday, closing up 4%. On Tuesday, the shares were up 56 cents to $53.25. The stock is trading just below its 52-week intraday high of $53.31, which it hit earlier in the session.

Paul Foster, of

in Chicago, said that call options in Wells were active Tuesday. Foster pointed out that volume on Monday was heavy, too, with about 11,000 contracts changing hands, which is about double the normal level, according to

McMillan Analysis

, of Morristown, N.J. Of that total, 8,861 were call options, while only 2,133 were put options. The average daily volume in Wells Fargo options is 5,074, according to McMillan.

In Tuesday's session, most of the nibbling in Wells options was in call options, too. A call option gives the purchaser the right, but not the obligation, to buy a stock for a specific price by a certain date. Buying a call option is a bullish bet on the fate of the underlying stock. Call options appreciate when the underlying stock price rises.

The Wells January 50 calls and the January 55 calls were seeing some interest from traders Tuesday, although the volume wasn't breathtaking. The January 50 calls were up 1/4 ($25) to 4 1/4 ($425) on the

Chicago Board Options Exchange

, while the January 55 calls were up 1/16 ($6.25) to 1 3/8 ($137.50) on the

American Stock Exchange

. The January 50 calls were popular yesterday, with more than 2,000 contracts changing hands.

ING Barings

had a positive note out on Wells today, with analyst Andrew Collins raising his price target on the bank's stock to $60. The analyst wrote that he continues "to view Wells Fargo as a top-pick within the large capitalization banking group, given healthy and consistent earnings growth prospects." He also wrote that Wells has one of the best management teams in the industry.

Wells is slated to post earnings on Jan. 16. The

First Call/Thomson Financial

consensus estimate calls for the company to earn 65 cents a share for the fourth quarter.

The woes of software titan


(MSFT) - Get Free Report

continued Tuesday, with the stock down $1 to $46.81. And judging from the prices of Microsoft options, it looks like there's still some anxiety about the stock. Shares of Microsoft hit a 52-week intraday low Tuesday when they bottomed out at $46.

Foster said that implied volatility -- the annualized estimate by the market of how much the underlying security can move -- on Microsoft options remained high, indicating there's nervousness about downside risk in the stock. Implied volatility doesn't indicate which direction the market thinks the underlying security will move, just the severity of the potential move.