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Champion

(CHA) - Get China Telecom Corp. Ltd. Report

options were hopping after the paper company received a $6.2 billion

takeover offer from industry giant

International Paper

(IP) - Get International Paper Company Report

.

International Paper is offering to buy Champion for $64 a share, $43 of which would be in cash and $21 in stock. Making the offer more interesting is the fact that Champion in February agreed to merge with Finland's

UPM-Kymmene

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.

The International Paper offer is higher than UPM's offer to buy Champion, and has raised the prospect of a bidding war for Champion. That's something some call buyers on Champion may be hoping for.

Shares of Champion were up 11 5/8 to 63 1/16 and almost 700 of its May 65 calls had traded by midday against open interest of zero. The contract was trading for 11/16 ($68.75).

Most of the action in Champion options was out in June, however. For the June 65 out-of-the-money calls, 853 contracts have traded compared to open interest of 321. The calls last traded at 2 1/16 ($206.25), up 5/16 ($31.25) halfway through the session.

Meanwhile, the June 60 in-the-money puts were garnering interest, with 935 contracts trading, compared to open interest of 25 contracts Monday. The puts were trading for 2 1/4 ($225), down 6 1/2 ($650), on action likely initiated by sellers betting on a bidding war to push those options out of the money by expiration.

In other names in the paper sector, Paul Foster of

TheStreet Recommends

1010WallStreet.com

in Chicago, pointed out there was some call action in

Georgia-Pacific

(GP)

, "but not enough to matter." He also noted that there was some call activity in

Mead

(MEA)

.

Elsewhere in the sector, implied volatility on

Temple-Inland

(TIN)

options was rising, Foster said.

The 52-week implied volatility average for Temple-Inland is 33-34, he said. The volatility on the June 50 options Tuesday stood at 66-67, which led him to muse over why the volatility continued to be so high, particularly since the company reported earnings last week. Volume in Temple-Inland options, however, has been scant. Shares of Temple-Inland were up 2 to 50 1/2.

Implied volatility is the annualized measure of how much the market thinks a stock or index can potentially move and is a key factor in an option's price.

Meanwhile, option interest on advertising and marketing giant

Young & Rubicam

(YNR)

perked up on a

Financial Times

report that company executives were negotiating a rival deal to ward off a takeover offer by

WPP

of the U.K.

Foster said the implied volatility on Y&R options, which has a 52-week average of 44, exploded to as high as 101 Tuesday. Most of the action in Y&R options has been on the call side, notably in the May 50, May 55 and May 60 strikes.

Shares of Y&R were up 5 1/4 to 47 7/8.

Foster noted that there was a smattering of call-buying and put-selling -- both bullish plays -- on

3M

(MMM) - Get 3M Company Report

, although the stock was getting hammered.

Shares of 3M were off 7 to 90 3/8 in the wake of better-than-expected

earnings. It appears the weakness in the stock was sparked by investors selling into the good news, considering that the stock soared Monday to close at 97 3/8, up sharply from last Thursday's close of 92 1/4.

As a result of today's battering, call buyers could secure lower prices on those options, while put sellers took in premiums inflated by the post-earnings selloff.