It appears that the buyout rumors that caused a flurry of action in options on

Allstate

(ALL) - Get Report

options are picking up again.

Jay Shartis, the options strategist at New York brokerage

R.F. Lafferty

, notes that Allstate has seen a fair amount of volume in its options lately. Shartis points out that Allstate was the subject of takeover rumors back in May, and that its rumored acquirer was

American International Group

(AIG) - Get Report

, with a talked-about takeout price in the mid-30s. (

TheStreet.com

published stories about the Allstate

rumors and

increase in options volume back in May.)

Shares of Allstate were up 3/4 to 24 15/16, and as a result, the July 25 Allstate

calls were seeing brisk action Friday morning. On the

American Stock Exchange

, more than 1,500 of the July 25 calls changed hands, while more than 1,000 traded on the

Chicago Board Options Exchange

. The calls were trading at 1/2 (50), up 1/8 (12.50).

"There's nothing but buyers of calls," said a CBOE trader who was watching Allstate options traffic.

Shartis said he's been watching the equity

put/call ratio, which late Friday morning was around 33, near his sell level of 32. He noted that Friday marks the third day in a row of a low number in the put/call ratio.

Shartis is wary of a slide, mentioning that in the last two years, the market has topped out on July options on the expiration day. Next Friday, July 21, is the monthly options expiration.

Knight Financial Products

has continued to beef up its option market-making presence on the

Pacific Exchange

, with the acquisition of

GK Financial's

post, a move announced Thursday.

Knight Financial, a unit of

Knight Trading Group

(NITE)

, on July 5 acquired a P-Coast options post from

Kovell Trading

. Knight said it plans to start trading from the GK Financial post within the next 60 days, pending P-Coast approval.

Those acquisitions will make Knight the lead market maker on the P-Coast in options on

America Online

(AOL)

,

Coca-Cola

(KO) - Get Report

,

Micron Technology

(MU) - Get Report

, and

Wal-Mart

(WMT) - Get Report

, to name a few.

Knight will compete in trading AOL with firms like

Susquehanna

, which trades AOL on the

Philadelphia Stock Exchange

,

J. Streicher

at the

American Stock Exchange

and

TFM Investment

at the

Chicago Board Options Exchange

. The

International Securities Exchange

currently does not list options on AOL.

Knight's moves this month on P-Coast have come in the wake of similar moves by the firm at the PHLX earlier this year.

As for future moves, Peter Hajas, CEO of Knight Financial, said the firm was always evaluating potential moves in the business.

Acquiring market makers will become easier for Knight. Consolidation among trading firms is increasing as smaller firms feel squeezed by shrinking spreads brought by multiple listing and larger competitors who are able to pay brokers to send them order flow -- a practice called payment for order flow.

The CBOE and AMEX recently announced payment for order flow

programs.

For example, under the CBOE plan, the CBOE will collect a 40-cents-a-contract fee from designated primary market makers and market makers in all equity options. The exchange said its plan came in response to a loss of market share in certain options to other exchanges, where market makers or specialists at those exchanges pay for order flow.

Under the CBOE plan, the market makers will tell the CBOE to pay a certain brokerage firm a certain amount of money per month for orders, funds which come from a 40-cents-a-contract fee paid by the market makers.

Hajas said he personally thinks payment for order flow plans belong in the hands of the liquidity providers (more commonly known as market makers and specialists) and that he was "not a fan of centralized programs."

Hajas declined to comment when asked if Knight pays for order flow in the options business.