Updated from 1:44 p.m. EDT

Perhaps one of the biggest questions hanging over the stock market is whether it's safe to venture forth on the long side of

Microsoft

(MSFT) - Get Report

.

Judging by the action in Microsoft options, a lot of players are betting on good things for the software giant's stock.

Traders and money managers say they are seeing heavier than normal call-option buying in Microsoft, showing investors are willing to risk capital on the chance of a rally in the wake of the company's wrangling with

Federal antitrust charges. Call options give holders the right to purchase the stock at a set price before a specific time, and are typically used to reflect bullish sentiment.

Options volume on Microsoft was heavier than usual Thursday, with a total of 174,113 contracts trading, 100,606 of which were call options, according to

McMillan Analysis

-- more than double Microsoft's average options volume.

Shares of Microsoft took a hit Thursday, and after rising briefly on Friday, were recently down 11/16, or 1.12%, to 60 13/16. The shares are a mile off their 52-week intraday high of 119 15/16. Published reports Friday said the

Justice Department

and the states are going to ask Judge

Thomas Penfield Jackson

to split Microsoft into two parts instead of three.

The possibility of splitting the company in three came up in Wednesday's hearing, when Jackson wondered whether splitting the software titan in two was enough of a remedy. Jackson earlier this year ruled that Microsoft violated antitrust laws.

Despite the hoopla in Washington, D.C., a

Chicago Board Options Exchange

floor source said recent action on Microsoft options has been bullish. The source said that, prior to the midweek hearing in the antitrust case against Microsoft, there was large call buying by institutions, action which has continued through today.

One

Pacific Exchange

trader said many out-of-the-money call buyers were in the market Wednesday. Out-of-the-money calls have strike prices higher than the current strike price and are frequently used to speculate on a dramatic upside move in a stock.

Hedge-fund manager Jordan Kahn of

Kahn Asset Management

said one of the things he's noticed is that in the June options, for example, open interest on the calls has exceeded that of the puts, suggesting people are bullish on the stock.

From a contrarian point of view, however, all that open interest on the call side isn't good, he said, because it suggests that there is too much optimism about the company's prospects. Kahn said he doesn't have a position in Microsoft.

Money manager David Schultz of

Summit Capital Holdings

noted the heavy trading on the call side of Microsoft options Thursday, noting in part the action in the June 65 calls, which would give the buyer the right to purchase shares for 65 before the third Friday of June. Those call prices would also appreciate along with Mister Softee's shares.

"The bet is pretty clear" on where investors and traders think Microsoft is going, said Schultz, who's long Microsoft.

By late Friday afternoon, a little more than 18,000 contracts of the June 65 calls had traded on the

Chicago Board Options Exchange

. The contracts were trading at 1 1/16 ($106.25), down 1/4 ($25).

Microsoft analysts on Wall Street have been cautious, overall, toward the stock due to uncertainty regarding the antitrust case, with analysts expecting that the legal wrangling between the company and the government will continue for some time.

In a report Thursday,

Goldman Sachs

analyst Rick Sherlund wrote that a breakup of the company "would be negative for shareholders and the stock would be worth less as a result." Sherlund's report was blamed for the pressure Microsoft's stock was under Thursday.

Call buyers could also be expecting a rally to spring from the potential of a Microsoft stock buyback after June 8, the pooling-of-interest deadline stemming from its acquisition of

Visio

. The company hasn't announced whether it will buy back shares but it has a history of doing so.

The

International Securities Exchange

successfully

launched Friday morning with the first trade consisting of 20 October 45 call-option contracts on

SBC Communications

(SBC)

.

For its first day, the exchange has listed options on three stocks: SBC,

LSI Logic

(LSI) - Get Report

and

Alcoa

(AA) - Get Report

.

Late Friday afternoon, volume totaled almost 4,900 contracts.