Anxiety and negative sentiment in the options market was building Wednesday as the

Nasdaq 100

approached the neighborhood of its April lows and the rest of the market got clobbered.

One trader at a Wall Street firm said at midmorning that despite another "meltdown" in the market, there wasn't a lot of panic. While there might not be much in the way of panic, the trader did note there was a lot of call selling in

Cisco

(CSCO) - Get Report

. Selling call options is a mildly bearish strategy, and not one that's been associated with Cisco in the past few years. Investors sell calls on the hope that the options will expire worthless, or below the strike price.

Cisco's stock was getting hammered, down 4 1/4, or 6.8%, to 58 1/2, despite posting

earnings that beat Wall Street estimates and garnering favorable reviews from analysts. However, the stock still appears to be suffering from worries that its lofty valuation isn't justified, despite its strong level of sales and earnings growth. Part of those worries were triggered by a negative article on the company in last weekend's

Barron's

.

Heavy volume was seen in the May 60 Cisco calls on the

Chicago Board Options Exchange

and the

American Stock Exchange

. The May 60 calls on the Amex, where nearly 8,600 contracts have traded, were trading at 2 7/16 ($243.75) down 3 3/16 ($318.75). Also on the Amex, the May 65 calls were changing hands at a rapid clip, with a little more than 8,200 contracts trading. The contracts were trading at 7/8 ($87.50), down 2 1/16 ($206.25).

While there may not have been a lot of panic, sentiment indicators were surely pointing to plenty of anxiety and trepidation in the options market, which for contrarians would be good news.

The

CBOE volatility index

, a gauge of fear in the options market, surged Wednesday, up 6.56% to 33.79, but off an intraday high of 34.67. The VIX, as it is better known, rises when demands for puts on the

S&P 100

increases. Meanwhile, the equity put/call ratio was at 55. The index put/call ratio was at 2.

Pat Hickey, principal at

Letco

on the

Pacific Exchange

, said the market's sentiment was dour. "The feel of it is negative," he said.

While traders and investors were souring on the market, Hickey said there was some general speculating that the market was reaching a bottom, however, he noted that the tune has been sung at numerous other times lately. Hickey said he was seeing some heavy retail buying of upside calls a little before 11 a.m. EDT.

Jordan Kahn of

Kahn Asset Management

, a hedge fund, pointed out that the last couple of times the Nasdaq 100 got down to around its 200-day moving average -- which stands around 3250 -- it has bounced off of it. Kahn said that around 3250 is "probably a key support" level.

Overall, right now, he said, it looks like people aren't making any big investment decisions, ahead of the

Federal Open Market Committee

meeting Tuesday.

As for options activity in the

Nasdaq 100 unit trust

(QQQ) - Get Report

, Kahn noted that most of the action was on the put side, which was dwarfing the call activity.

Noting the heavy QQQ put buying, he said he thinks that sets the market up for a quick snap back rally. The QQQ was off 4 5/16, or 5%, to 81 11/16.

The May 86 QQQ puts were seeing a lot of volume on the Amex, with 11,234 contracts trading. The puts were trading at 6 1/4 ($625), up 2 1/2 ($250).

Investors and traders who bought call options

recently on

Champion

(CHA) - Get Report

on hopes that a bidding war would erupt for the paper company are looking rather prescient this morning.

And the upside for Champion might not be over yet. Shares of Champion were flying Wednesday, up 5 9/16, or 8.4%, 71 7/8.

Champion, based in Stamford, Conn., early Wednesday said it

received a $75 a share acquisition offer in cash and stock from industry behemoth

International Paper

(IP) - Get Report

, an offer which is much sweeter than International Paper's original bid of $64 a share made last month.

That late-April offer was also higher than Finland's

UPM-Kymmene's

( UPM) offer to buy Champion which was made in February.

Meanwhile, Wednesday morning UPM also said it raised its bid to buy Champion to $70 a share in cash, which still puts it under International Paper's bid.

In a statement, Champion said its board determined that the International Paper bid was "superior" to UPM's. In response, UPM said it "will consider the situation" and pointed out that it is able to submit a new proposal until Friday, 5 p.m. EDT.

Investors were nibbling in Champion call options. The out-of-the-money June 75 calls quickly gained favor among the speculators, trading more than 1,300 contracts for about 13/16 ($81.25).

The May 65 calls, which speculators had been trading before the new IP bid, have seen about 340 contracts trade against open interest of more than 9,600. The May 65 calls were trading at 7 1/4 ($725), up 4 3/4 ($475).

Meanwhile, International Paper's stock was getting clocked, off 1 3/16 to 36 1/16. UPM was up 7/8 to 29 1/4.