When shares of

BP Amoco

(BPA)

took a bath Thursday, pros were left to question both when and if the company's bid for

Arco

would come to fruition.

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The market was distinctly upset by the

FTC's

decision to block BP Amoco's acquisition of Arco because the deal would raise crude-oil prices. For merger arbitrage players who use options to profit from the probabilities of a deal getting done, or undone, the timing of a deal's completion can make a dramatic difference.

And if the BP-Amoco-Arco play develops as a merger-in-waiting and gets delayed in the courts for months, it could put some hurt on those expecting a smooth road to completion. In this case, the chief factor is time. (And the decay of the time value on an option is key; as an option begins to age, its value begins to slip away.)

"This whole BP-Amoco-Arco play is now a timing issue; anything in the courts will drag on," said Paul Foster of

1010wallstreet.com

in Chicago. "Do you really want this position on now? There's no reason to be long." If Foster is right, that leaves call buyers in a tough spot, unless they don't expire "until the spring or even the end of summer."

Philip Morris

(MO) - Get Report

hasn't been involved in any M&A but had a similar cycle recently. Its options have become active again, but only because many of the legal issues the tobacco industry is facing are starting to wend their way out of the courts. "The consummation of some of those things is finally nearing," Foster said.

The second important factor is the volatility of the underlying stock.

In the case of BP-Amoco, "market makers in these options are afraid of more downside in the stock, since no one knows how long this is going to take to sort through," Foster pointed out. That's pretty easy to tell, because downside bets right now are priced higher than upside bets.

BPA's February 55 calls are fetching just 7/16 ($43.75), while the February 55 puts are fetching 4 1/4 ($425) apiece. The stock is down 2 15/16 to 51.

All of this confusion, though, doesn't negate options as a great way to play takeovers.

For example, Foster's prediction on a potential takeover is

Goodyear Tire

(GT) - Get Report

by

Bridgestone Corp.

of Japan.

Bridgestone overnight said it will issue 50 billion yen in bonds by the end of this month, according to wire service reports. The world's largest automobile tire maker last issued bonds in 1991. To date the company has run operations using money mainly from short-term financing, and said it plans to use the money largely to repay short-term loans.

Foster's not sure when a takeover might take place, but is intrigued by the fact that Goodyear's stock is near historic lows. Goodyear stock is down 9/16 to 22 11/16, and the most actively traded options Thursday were the April 20 puts, up 1/8 ($12.50) to 1 ($100).

A seller of those puts would be betting that the company will be bought at a price above the 20-strike, and the puts would then expire worthless.