Compaq

(CPQ)

reports Jan. 25, well after January options expire but that hasn't stopped investors so far from bidding them up in advance of earnings.

Among the most active options Friday morning were Compaq January 30 call options, and by midday investors were moving their bets into February options as Compaq stock hit a price target probably few thought it would reach so quickly.

Swiss American Securities

options strategist Scott Fullman pointed out that Compaq has had roughly a 10-point run higher in the past month. "Back in November, this stock traded at 21. It hasn't been up above 28 that long; it certainly hadn't been above 30 in a

long

time," he explained.

On that expectation, investors put to work a popular strategy known in options as "covered calls," and Compaq at that time seemed like the perfect candidate.

While call-option buyers get the right to buy the stock at their option's strike price by expiration, sellers (or writers) are obligated to sell the shares at the strike price in return for a premium they take in for the sale. In a covered call strategy, an investor sells call options while owning the underlying stock.

In the case of Compaq, which had been under siege, call writers could have been either long-term stock holders seeking income from the stock's sluggishness or speculators playing the likelihood the stock wouldn't be rising anytime soon.

"The last time it was at 30 when it had a breakdown was in April. People doing this three to six months ago thought covered calls looked attractive at that point," Fullman added.

Now? Compaq's hovering around 31 and looks to be moving higher ahead of the Jan. 25 earnings. Hence, there's been a flurry of activity as investors buy back the January 30 calls they sold -- over 7,700 of them traded Friday, up 11/16 ($68.75) to 1 5/8 ($162.50) -- and sell fresh February 35 calls that let them hold the stock higher and longer.

Currently the February 35 calls are fetching 1 3/8 ($137.50). "For an extra cost of 1/2 ($50 per contract) you get an extra 5-point potential," with the February call options, Fullman added. February 32 1/2 and 35 calls had traded between 1,000 and 2,000 contracts respectively.

Call-sellers could be scared that Compaq will stage a breakout like other technology issues on earnings. It wouldn't be unlike what happened to

Intel's

(INTC) - Get Report

January 90 calls -- the hottest ticket on the Street this week -- after the company reported better-than-expected earnings after Thursday's close.

The options were trading at around 4 ($400) per contract by midday Thursday; by Friday, those same January 90 calls were selling for 12 1/2 ($1,250) as the stock rose 11 3/16 to 102 3/16.

Elsewhere,

Pacific Gateway's

(PGEX)

call options continued to draw the flies to the honey, with no particular news in the stock, a sign something positive could be in the offing.

In the case of Pacific Gateway, the stock was down 1/8 to 22 3/8, but the February 22 1/2 calls were up 5/8 ($62.50) to 4 ($400) on the

American Stock Exchange

amid fairly thin volume. The April 25 calls were up 1 ($100) to 4 1/2 ($450) on the

Chicago Board Options Exchange

. The action showed buyers weren't particularly sensitive to the options' prices.

Finally, trading in bank-stock options hit full stride Friday, ahead of a possible interest-rate hike, with big trades crossing in

Citigroup

(C) - Get Report

and

Bank of America

(BAC) - Get Report

.

Citigroup's January 55 calls were up 1 3/8 ($137.50) to 3 1/4 ($375) as the stock added 2 1/8 to 57 3/4. Bank of America's January 50 puts slid 11/16 ($68.75) to 2 3/16 ($218.75) as its share price gained 1 5/16 to 48 7/8.