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Check Out the Unusual Option Action in Nokia Before Microsoft Deal

Yahoo! Finance
The Exchange

By Jon "DRJ" Najarian

Nokia (NOK) attracted unusually bullish option activity before this morning's $7.2 billion deal with Microsoft (MSFT), raising questions about whether someone knew about the news ahead of time.

optionMONSTER's Heat Seeker tracking system detected heavy buying of September and October calls at the 3.50, 4, and other strike prices. These contracts locked in the purchase price for the stock no matter how far it might rise, so they have profited handsomely with NOK up more than 30 percent to $5.05 today.

Speculation in options is common, just as in the stock market, but it is highly unusual to see such heavy activity going into a three-day holiday weekend in the summer. Moreover, the only concrete catalyst for Nokia last week appeared to be a "sell" rating by Deutsche Bank issued on Aug. 27, accompanied by cautious comments. The only real issue that could have been somewhat constructive was speculation that Nokia CEO Stephen Elop might be a candidate for to succeed Steve Ballmer in the top spot at Microsoft.

Last week's numbers tell the story in Nokia, which had an average volume of 13,600 calls per day a week earlier. Below are the number of NOK calls that changed hands in last three U.S. trading days before Microsoft announced that it would buy the Finnish company's mobile handset and services business.

--Friday, Aug. 30: 47,000 calls.

--Thursday, Aug. 29: 28,000 calls.

--Wednesday, Aug. 28: 54,000 calls.

The September 4 calls, which went for $0.12 to $0.14 in huge numbers last week, have traded to $1.49 today. That is a profit of roughly $1.35 per option, or more than $1.6 million for the 12,000 contracts that traded in this strike alone.

Jon Najarian is co-founder of Optionmonster.com.