America Online

(AOL)

was the express elevator of choice today for options traders who wanted to leave the rest of the drooping

Dow

in the basement.

AOL surged more than 12% as the service burst to a new high of 149 this morning, up 16 5/8 from yesterday's close of 132 3/8. The stock pulled back somewhat this afternoon, but was still up 13 1/16 to 145 7/16. Option volume was huge as many investors jumped aboard the AOL rocket.

The frenzy was spurred this morning by

PaineWebber

, which reiterated its buy on the stock and jumped its 12-month target price 72% to 215 from 125.

"AOL action is all over the place today," says Michael Schwartz, chief options strategist for

CIBC Oppenheimer

. "Even the

American Stock Exchange

had a substantial part of the AOL volume today," says Schwartz. "I think a large institutional player split up his order among the exchanges." Normally, the

Chicago Board Options Exchange

, or CBOE, handles the lion's share of AOL option volume.

Investors were piling into the April and May near-the-money calls and puts, with the April 140 calls being the heaviest hit, as about 14,700 call contracts moved against open interest 16,687. The calls also were hopping at the April 150 and 160 calls, as 3,750 and 4,000 contracts moved, respectively. May action was just as ripe, with the May 140s seeing the biggest pop as 6,390 contracts moved. Even the July 160s were active as 4,600 contracts traded.

Investors had a new crop of calls and puts to play with after AOL burst through the previous strike price barriers. Options above the 145 level opened today for trading, and thus had no previous open interest.

Outside the warm and fuzzy feeling AOL was giving off, tech continued to rule as

Compaq

(CPQ)

and

Microsoft

(MSFT) - Get Report

led the list of most actives on the Pacific Exchange.

Outside of tech, insurer

Allstate

(ALL) - Get Report

saw some heavy call action in its October 40 strike as 1,275 contracts went out against lesser open interest. It was likely that an investor may have been selling the out-of-the-money calls, most likely as part of a covered write play -- selling calls against a large holding of stock or simply selling calls with the expectation they would expire worthless.

If that's the case, the strategy may have been to take in some premium and hope Allstate's stock stays below 40 in October, OpCo's Schwartz says. Either that, or the investor doesn't mind having his Allstate stock called away from him in October at 40 per share. The calls went out at 3, or $300 per contract, which means the investor took in about $382,500.

There also were 5,600 contracts in Allstate's April 40 calls that moved against open interest of 12,392. That trade, however, could have been the same investor closing out his front month position before selling the October calls. Allstate's stock was down 5/16 to 37 15/16 this afternoon.

Lone Star Steakhouse

(STAR) - Get Report

, often the subject of takeover banter, saw a ton of at-the-money next month calls move this afternoon. About 4,530 contracts of the May 10 calls moved against only five contracts of open interest, indicating about $680,000 of new money was at play. The calls went out at about 1 1/2, or $150 per contract.

The play was likely a speculative strategy betting on a surge of at least 15% in the price of Lone Star by May 21. A member of the CBOE options trading pit says a firm bought those from the trading crowd. Lone Star's stock was at 10, down 1/2, this afternoon.

Options analyst and perma-bull Bernie Schaeffer possibly became the first stock market sage to go back for seconds at the Dow 10,000 buffet yesterday. His eponymous firm is calling for Dow 11,500 later this year.

Schaeffer cites a "variety of indicators" that signal a continued stock market advance. "We continue to firmly believe 1999 will be another 20%-plus return year for equities," Schaeffer says in the release.

The release also points out that Schaeffer had predicted the Dow 10,000 mark for year-end 1998.