MSFT – Microsoft Corp. – Options traders littered the software company with long term bullish transactions with shares of the underlying stock trading 1.20% higher at $25.09 with 40 minutes remaining before the closing bell. It appears one investor initiated a lopsided bullish call butterfly spread in the January 2011 contract to position for significantly higher MSFT shares by expiration. The optimistic individual picked up 6,000 calls at the January 2011 $26 strike for a premium of $1.94 each [wing 1] and purchased another 6,000 calls at the higher January 2011 $35 strike for an average premium of $0.15 apiece [wing 2]. Finally, the trader sold 12,000 calls at the January 2011 $30 strike to receive a premium of $0.66 a-pop [body]. The net cost of the butterfly spread amounts to $0.77 per contract. Therefore, the responsible party is prepared to make money as long as Microsoft’s shares rally 6.7% over the current price of $25.09 to surpass the effective breakeven point to the upside at $26.77 by expiration day. Maximum potential profits of $3.23 per contract accumulate for the trader should MSFT’s shares surge 19.5% to $30.00 by January 2011 expiration. The investor loses the $0.77 premium paid for the transaction if shares fail to rally above $26.00. And, in most butterfly spreads this amount would represent maximum loss potential. But, in this case, the trader could lose up to a maximum of $1.77 per contract if Microsoft’s shares rally above $35.00 because of the greater distance of the upper strike price selected in the transaction. [We note that the spread is ‘lopsided’ because typically the wings of a butterfly are equidistant. However, in this case the wings are different lengths because there is no January 2011 $34 strike available, so the investor utilized the next closest, or January 2011 $35 strike price.] The investor starts to lose money above and beyond the $0.77 in premium paid for the trade if shares of the underlying stock rally above $34.00 ahead of expiration day. Other bullish investors enacted plain-vanilla debit call spreads in the longer-dated January 2012 contract. Optimists purchased a total of 7,000 calls at the January 2012 $32.5 strike for roughly 1.34 each, and sold the same number of calls at the higher January 2012 $37.5 strike for approximately $0.54 in premium per contract. The spread cost investors an average net premium of $0.80 per contract. Investors long the spread are prepared to amass maximum potential profits of $4.20 per contract in the event that MSFT’s shares surge a whopping 49.45% to $37.50 by January 2012 expiration.