Microsoft calls run before earnings

Option traders have doubled their money in bullish bets on Microsoft, which hit new highs today ahead of quarterly results later this week.

On June 27, Investitute’s market scanners found that 3,250 Weekly $71 calls expiring on July 28 were bought for $1.32 as part of a bullish spread with shares at $69.90. Those calls traded for $3.10 today, more than doubling in value.

The stock rose just 5 percent in that time, showing how options can far outperform their underlying shares. On CNBC’s “Halftime Report” Friday, Investitute co-founder Jon Najarian cited another bullish trade in Microsoft’s July $26 calls.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

MSFT finished higher by 0.78 percent to $73.35 today, minutes after hitting a new 52-week high of $73.45. The software giant is scheduled to report earnings in the post-market on Thursday.

The company received two high-profile price upgrades this morning: Bank of America raised its target to $83 from $75, while Credit Suisse lifted its number to $84 from $80.

(Disclosure: I am long MSFT.)