Here we go again.

The

Financial Times

reported that

Lehman Brothers

(LEH)

is pondering a takeover bid of

Bear Stearns

(BSC)

, helping juice up Bear Stearns' stock price and options trading.

Bear Stearns, along with Lehman itself, have been seen for some time as takeover targets considering the consolidation that has taken place in the sector this year. Bear Stearns is a newer arrival in the takeover rumor mill than Lehman. Shares of Bear Stearns rose $2.06 to $58.88, while Lehman fell $2.13 to $55.63.

Bear Stearns' stock, because of all the takeover chatter this summer and fall, reached a 52-week intraday peak on Sept. 11, soaring as high as $72.50. But over the past two months, it has stumbled, with no takeover offer emerging. From that Sept. 11 peak, the stock is off 19%.

The stock's rough sledding since September is a lesson to traders and investors of the dangers of buying speculative takeover targets. Aside from the occasional spike in the stock over this time, those who bought the stock and those who bought call options on Bear Stearns and didn't get out on the intermittent surges in the stock, have gotten burned.

Bear Stearns' options' price increased, a typical occurrence when potential-acquisition rumors creep into the market. Big moves can follow in the underlying stock, making the leverage options provide essential. Market makers see this demand, and raise the prices of those options. Technically, the phenomenon is called rising implied volatility.

Tom Shanahan of

KFT Trading

, the designated primary market maker for Bear Stearns options at the CBOE, calls Bear Stearns a "perennial takeover" target, and said buyers had been shooting for the November 60 call options. Investors buy call options as a bet that the underlying stock will rise.

Shanahan said that there was an increase in implied volatility in the options, however, he said it is not as high as it has been in the past. He did say that the volume in the underlying stock was about normal.

Bear Stearns November 60 calls were seeing some decent volume Thursday morning with 1,027 contracts trading. The calls rose 15/16 ($93.75) to 2 3/4 ($275).

The uncertainty over the outcome of the presidential election between GOP candidate

George W. Bush

and Democratic candidate Vice President

Al Gore

, coupled with some corporate earnings worries converged to smack stocks Thursday.

The stock market has never been a fan of uncertainty and that's about the only clear thing coming out of the ballot recount in Florida. Also troubling investors is the prospect of legal battles associated with the voting in Florida which could drag out the final call on who the next president will be.

When asked for his thoughts on the market this morning, Rob Sorrentino of

Sorrentino Asset Management

, who trades index options, said simply: "I don't know. I really don't know." Like many of his peers, the hedge fund manager said he's not doing much in the market right now and he's waiting until the end of the day for the results of Florida's recount. Sorrentino did say, however, that the market had successfully retested the lows from last month, which is a positive.

But the prospect of legal wrangling dragging out the election process weighed on his mind. "If the lawyers get involved I think the market's going to fall apart," Sorrentino said.