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Traders Chasing Microsoft Call Options

Options traders were keeping a keen eye on


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options as call buyers were swinging into unusually heavy action.

One New York trader said a major securities firm was bidding for large blocks of Microsoft calls as the stock climbed 2.56 to 72. That kind of interest in call options typically shows that traders think a stock is ready to rise.

Still hanging over Microsoft are its antitrust settlement negotiation with the Justice Department, 17 states, and myriad lawsuits. Any news on developments that would bring the antitrust episode to an end for the company are seen as a positive for the stock. And traders have been on the lookout for any information in that vein.

Today's action was focused on short-term call options -- ones that give the holders the right to buy the stock at a specific price before Friday, Sept. 15. The out-of-the-money September 75 call options traded more than 7000 contracts and rose 7/16 ($43.75) to 11/16 ($68.75) on the day.

Trading volume on the September 70 calls reached 9500 contracts this morning. That activity pushed the price of those options up 13/16 ($81.25) to 2 3/16 ($218.75).

With overall market volatility receding, options prices have slid, especially in the tech sector. That includes Microsoft, which had been made more volatile by its wrangling with the U.S. government over antitrust charges. "The anxiety is over for Microsoft," says Paul Foster, the strategist at

. "The political anxiety has ended, and the overall market anxiety has ended, so the options prices have been lower."

A little bit of love, that's all it takes.

This morning research boutique Sanford Bernstein gave a kiss to chipmakers, and sparked a minirally in stocks such as

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Advanced Micro Devices

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that carried over into some big options plays.

Bernstein issued a note this morning saying it believes recent declines in chip stock prices weren't "reflective of an impending collapse in the PC demand, and present an attractive trading opportunity during the next two-three months." Traders took the opportunity, as Micron jumped 2.38 to 72.38 in morning action, to move September options positions into October.

Often, traders will buy put options or sell call options against stock positions to provide some protection or a buffer against a shortfall. That's what it looked like this morning as more than 10,000 call options traded at the September 75 and October 70 strike prices.

With the stock rising just a week or so before September options expiration, traders apparently took the prudent course to close out the September 75 calls, which rose in price 5/8 ($62.50) to 2 5/16 ($231.25).

Intel, which ran about 2 to 68 Thursday morning, saw heavy call activity in its September 65 and 70 calls. The September 65 calls, which saw its price increase 1 5/16 ($131.25) to 4 ($400), traded more than 3,000 contracts. The September 70 calls saw volume reach 4,900 as the price climbed 1/2 ($50) to 1 1/4 ($125).