Options Buzz: Microsoft Trading Does an About Face as Justice Moves

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Tech buyers are back in the options market, but the

Justice Department

has altered the tone dramatically.

After being decimated on Friday, the technology sector received a show of affection from investors this morning, with call buyers taking long looks at

Microsoft

(MSFT) - Get Report

,

3Com

(COMS)

and

Intel

(INTC) - Get Report

.

But the mood toward tech shifted rapidly in the options market when the Justice Department announced that it would take action against Microsoft concerning the way in which the software giant sells and markets Internet Explorer. The early afternoon Justice Department action stunned traders fixated on corporate profits and overshadowed what was a strong rebound in tech stocks.

The nervous intensity following the Justice Department's move rekindled some of the excitement from Friday's trading. Friday's flurry resulted in a new volume record on the

Pacific Exchange

, where many of the tech giants have options listed. The day's volume hit 481,777 contracts on more than 40,000 transactions Friday, according to an exchange spokesman.

Microsoft, reporting earnings after the close, also got a strong vote of confidence from options traders, who piled into the November 135, 140 and 145 calls. The November 135 recorded the strongest volume trading 2,215 contracts. The company's November 125 and 130 puts also traded heavily. Those call buyers were scrambling as Microsoft plunged in the wake of the Justice Department move. Up a couple of bucks before the news, Mister Softee skidded underwater in a hurry. At 1:15 p.m. Microsoft was trading down 3 1/4 at 129.

But Microsoft's woes are unlikely to infect the entire tech sector. For instance -- as could be expected -- Microsoft's browser rival,

Netscape

(NSCP)

, sprinted higher after the Justice Department action. Common shares surged more than 5 to about 40 and options action crackled as call buyers stormed in to get a piece of the Netscape action.

With an earnings announcement on tap for after the close, call speculators were also making positive bets on

IBM

(IBM) - Get Report

. Bulls were staking out positions in the company's November 100 and November 105 calls with Big Blue's shares trading in the 96 range at midday.

Everen Securities

options strategist Rod Jamieson said the tech buyers were coming in on an otherwise quiet day, one trading day removed from a heavy expiration. "We saw some people doing buy-writes on Friday and the call buyers showed up today," he said.

Those call buyers were optimistic that Intel would recover at least part of the ground it lost last week as November 85, 90 and 95 calls were trading briskly at midday with a combined volume of almost 10,000 contracts.

3Com's November 50 calls were among the day's leaders as well with volume over 3,400.

In other options action:

The announcement that C. Michael Armstrong would replace Bob Allen as CEO of

AT&T

(T) - Get Report

was met with optimism from options traders. The November 50 calls traded 2,536 contracts and the November 45 calls traded more than 4,800. "There's a sense that with the CEO decision behind them, the company can finally move forward," said one trader.

ITT's

(ITT) - Get Report

November 75 call series traded up sharply on word that a competing bid from

Starwood Lodging

(HOT)

was the table. On volume of over 4,000, the contracts were trading at 2, up 1 7/16 from the open.

Coca-Cola

(KO) - Get Report

options didn't do much in the wake of the death of Chairman Roberto Goizueta. Out-of-the-money November 60 and 65 calls showed some activity volume, trading about 270 contracts each. The November 60 and 65 puts showed similar activity.