Options Players Look for a Pop on Upcoming Microsoft News

With earnings in the offing, Mister Softee appeals to call buyers.
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Some days, the options market holds secrets leading to untold wealth. Today, however, traders are focusing on some events everyone knows are happening.

The biggest of those events is the

Microsoft

(MSFT) - Get Report

earnings announcement due after the close today. That has inspired call buyers looking for an easy way to make a few bucks on what are widely expected to be positive results. "There's a decent amount of action there," said one institutional options trader in New York. "Most of the option activity this week may be looking for ways to play earnings, ways to take a shot."

The shot investors seemed to be taking was that Mister Softee's February 150 calls would be worth more tomorrow than the 10 1/4 ($1,025) they cost at just before noon today. Those calls traded a quick 5,700 contracts this morning and jumped 1 1/2 ($150) as Microsoft's stock traded up to 151 11/16.

Speculation was also drifting into the higher strike prices such as the February 155 calls, which traded more than 2,000 contracts before noon. That out-of-the-money play spiked 1 5/8 ($162.50) to 7 1/2 ($750). With five weeks to go before the February options expire, these calls are also carrying significant time premium, so some sellers may be in the mix as well, hoping to buy back cheaper options later in the cycle on a pullback in the underlying.

Microsoft's involvement with

3Com

(COMS)

-- a statement of an alliance in converged networks development -- is goosing that company's call volume as well.

Picking up on those expectations, 3Com's stock hopped a quick 2 3/8 to 46 9/16 this morning. The February 45, 47 1/2 and 50 strikes were all buys, but the 50s led the way by amassing volume of more than 2,700 contracts. The cost of the contract rose 7/16 ($43.75) to 1 13/16 ($181.25).

The companies announced today that they would be developing the voice, data and video information networks, integrating 3Com hardware with Windows-based applications.

In the most recent problem associated with the Internet sector and options on individual equities, a move by the

Committee on Options Proposals

managed to postpone listing of options on

Broadcast.com

.

The options, slated to be listed on all of the four options exchanges on Jan. 21, will not be listed until the Feb. 12, one day after the effective date of a planned stock split. The feeling within the industry was that the options listings, which would multiply with the addition of split-adjusted options, would be too cumbersome for many of the quote vendors that distribute options prices.

The fax vote of the group, which is made up of options pros from upstairs and floor firms, resulted in 87% of the votes in favor of the delay. The

American Stock Exchange

was the first to postpone the listing until after the split.