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Options market activity is signaling that

AT&T's

(T) - Get AT&T Inc. Report

beleaguered stock has bottomed out and is coiled for a nice rally in the very near future.

Too bad that for most of 2000 -- as the stock has shed 58% of its value -- the options market has been signaling pretty much the same thing to no avail.

The most recent signals come from heavy volume in AT&T November calls, options used to express bullish sentiment about a stock. The verdict on whether the investors buying call options to speculate on a rebound in Ma Bell's shares are wrong again will have to wait a few weeks longer.

Joe Sunderman, an analyst at options firm

Schaeffer's Investment Research

, says options traders have been optimistic about AT&T in spite of the downtrend in the stock this year, and again are buying out-of-the-money call options, instruments used as a substitute for an outright stock purchase.

Out-of-the-money calls have a strike price higher than the stock's share price, and thus have little value. They do, however, appreciate rapidly if the stock rises. Buying call options requires a much smaller capital outlay because an investor is paying only for the right to buy the stock, not the stock itself. That makes the options a prudent way to play a long-shot such as AT&T.

Still, leverage doesn't help when a stock is dead in the water. "They haven't had much luck at all," Sunderman says, pointing to speculators who've jumped into AT&T call options this year. Yet, expiration after expiration, interest in call contracts has been strong, especially in out-of-the-money strikes, he notes. "You'd think investors would learn their lesson," he says.

They haven't. Even now, if the out-of-the-money open interest in November call options on AT&T is any indicator, hope is alive and well, even with the shares foundering around $22.

Much of the action can be seen in the November 25 calls on AT&T, where as of Tuesday's close, open interest in that option stood at 24,086 contracts. For November options, call open interest totaled 82,840 contracts compared to just 36,841 put options, which are used to express bearish sentiment. Those numbers mark a lot of short-term bullishness on AT&T, especially considering those options expire on Nov. 17.

Some traders would look at all that call option open interest on AT&T -- both currently and over past months -- with a cautious eye, however. Contrarian investors generally like to do the opposite of what the majority of the market is doing. So in the case of the heavy interest in November call options, a contrarian would likely bet against all that bullishness and perhaps buy put options instead, betting that AT&T's stock will fall. Investors who took that approach in 2000 so far would've been handsomely rewarded.

November call buyers may have better prospects. Responding to demands from important shareholders that it do something to stem the stock's slide, AT&T last week announced it would split itself into

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four companies. A short rally inspired by news reports of the planned breakup dissipated as investors dumped the stock when the announcement actually came.

In 2000, AT&T has had more than its share of problems, including rapidly falling long-distance revenue. Also, the heavy amount of debt that AT&T has to service doesn't exactly make investors jump for joy. As of Sept. 30, AT&T had $32.3 billion in debt maturing in a year, while its long-term debt totaled $29.4 billion, for a total of $61.7 billion. AT&T has arranged a new $25 billion loan to pay down more expensive short-term debt, according to a

Bloomberg

report Monday.

A good chunk of that debt has sprung from financing AT&T's expensive acquisitions of cable TV giants

Tele-Communications

and

MediaOne

.

Despite all AT&T's troubles, there are plenty of investors who believe the behemoth has a rally in it, especially with its shares in the low 20s. One of those persuaded to buy was Paul Foster of

1010WallStreet.com

, who says he owns AT&T stock in his long-term account. He says he bought because the selling in the stock was overdone.

The difficulty with interpreting options activity is that traders are usually extremely short-term investors. That makes the picture murky, despite the apparent optimism brought on by call-buyers

The cautiously optimistic may look to buy longer-term options, called Long-term Equity Anticipation Securities or LEAPS, which won't expire until January 2002 or 2003. LEAPS, which cost more than standard options, are often used as stock substitutes and give investors some cushioning while the AT&T saga plays out.

Judging from the past 12 months, they could use all the cushioning they can find.