On a sunny Friday in New York, the glow of takeover speculation is shining on a couple of stocks that have been on options traders' minds in the past.

As the overall market bounces back from employment reports, inflation, and interest-rate increases, there are still speculators around to keep the rumor mill grinding up new candidates for M&A action.

Today, it seems like Internet search engine

Lycos

(LCOS)

and

Qwest

(Q)

returned to the provinces of takeover chatterboxes. While many pros aren't sure of the quality of the speculation, there seems to be enough traffic pointing, at the very least, to investor interest in the possibilities.

According to

McMillan Analysis

, Lycos options more than doubled their average daily volume by trading 4,600 contracts on Thursday. And this morning, with the stock down 1 9/16 to 49 1/4, there was some early trading in Lycos calls accompanied by a strong move in those contracts' prices.

The calls, typically used by investors to speculate on a dramatic upside move, saw their premiums almost double in early trading. The June 50 call's price jumped 3 3/8 ($337.50) to 7 1/4 ($725) on volume of 250 contracts in the early going. By midday, however, that price had come in at 6 1/2.

The July 50 calls were trading for 8 7/8 ($887.50), up 3 ($300) on volume of 200 contracts in the first half-hour of trading. Those contracts also gave up some ground and returned to about 7 3/4 halfway through the session.

According to McMillan's daily options report, chat-room rumors had labeled Lycos a target of

Vodafone AirTouch

(VOD) - Get Report

on Thursday but the stock did little to follow through.

"My heart's not beating heavy about it. I don't have a lot of confidence

in the rumor, but with the implied volatility rising so much, it could mean something," says Paul Foster, the options strategist at

1010WallStreet.com

.

Foster said Lycos' implied volatility levels -- the annualized amount by which investors assume the stock can move -- had risen from around 80 a month ago to 100 or higher in some of the company's at-the-money options. That's typically a sign that at least some portion of the market is expecting dramatic news.

Qwest options got juiced perhaps by an article in Friday's

New York Post

, which cited sources saying both

Deutsche Telekom

(DT) - Get Report

and

France Telecom

(FTE)

were considering a bid for the company.

With the stock trading up about 2 to 44, Qwest's May 50 and June 45 calls were up on significant volume in early trading today. The May 50 call contract's volume broke 3,200, action that pushed the price up 7/16 ($43.75) to 9/16 ($56.25).

Much of the action could, however, be call sellers speculating on a deal not happening before the third Friday in May and those May 50 contracts expiring worthless.

Miller Tabak

options trader and M&A expert Michelle Skupp said playing Qwest rumors at this point would simply be "taking a shot" and that M&A chatter isn't as reliable as it had been in the early 1990s.

"People

want

there to be something happening" and their trading often reflects that, Skupp said.

Overheard at the Options Industry Conference 2000 in sunny Florida after

Securities and Exchange Commission

Chairman

Arthur Levitt's

keynote address: "He spent 40 minutes saying absolutely nothing."

The chairman didn't address a topic many attendees wanted to hear him talk about: payment for order flow. Before his speech, he also declined to talk about the issue overall with the press.

Meanwhile, when asked about when the SEC would have a determination on options-market linkage, Levitt didn't mention a time frame, however he did say of the issue, "it's important to us."

Levitt said that "unconnected markets and the pricing disparities they can produce have the power to erode investor confidence in our total market system."

In his speech before a packed room at the options industry conference in Palm Beach Gardens, Fla., the chairman mentioned that the SEC had approved the

New York Stock Exchange's

proposed scuttling of Rule 390. Upon publication of the SEC order, Big Board members will be free to execute orders in NYSE-listed stocks away from a stock exchange, the chairman said.

Staff reporter Brian Louis contributed to this story from poolside in Palm Beach Gardens, Fla.