Microsoft Corp's (>> Microsoft Corporation) announcement on Monday that it will buy LinkedIn Corp (>> LinkedIn Corp) for $26.2 billion sent shares of the professional social networking firm into the stratosphere.

And while that out-of-the-blue news gave most LinkedIn shareholders a big reason to cheer, one trader who had just laid an intricate options bet looks to be smarting from a big loss.

On Friday, the largest trade in LinkedIn's options was an "iron condor," a complex strategy that involves buying and selling of call and put options simultaneously.

Buying a call conveys the right to purchase shares at a fixed price in the future, while buying puts conveys the right to sell shares. Selling calls and puts creates the opposite obligation.

The trade would have delivered its maximum return if LinkedIn shares effectively flatlined around Friday's level near $131 over the next two months. But then LinkedIn shares shot up 47 percent after the Microsoft news, torpedoing the trade and leaving the trader with an estimated loss of nearly $1 million.

The trader, whose identity is not known, bought 500 LinkedIn calls betting on the shares rising above $185 by mid-August, and sold the same number of calls betting on the shares staying below $160 by that date.

At the same time, the trader also bought 600 puts that would profit if the shares dipped below $115, and sold the same number of puts that bet the shares would stay above $125.

All in, the trader pocketed roughly $275,000 for setting up the trade and would get to keep it all as long as the shares held between $125 and $160 through the August expiration of the options.

Instead, with Microsoft offering $196 a share and the stock jumping to north of $192, the position is well under water. The trader stands to lose a little under $1 million, according to a Reuters calculation.

"A day after you sell it, there is a buyout - I would call it the worst-case scenario," Henry Schwartz, president at options analytics firm Trade Alert said.

(Editing by Dan Burns and Matthew Lewis)

By Saqib Iqbal Ahmed

Stocks treated in this article : Microsoft Corporation, LinkedIn Corp