When a high-stakes bidding war hits Wall Street, the first thing options investors look for is a way to play the odds of whether the deal will be completed.

Yesterday,

America Online

(AOL)

Chairman Stephen Case hinted that his company will support

Comcast's

(CMCSK)

bid for

MediaOne Group

(UMG)

as AOL seeks new ways to expand its high-speed access to the Internet.

Case told

The Washington Post

his company is seeking multiple avenues for high-speed service, adding, "Some new possibilities have emerged over the past few weeks." When asked what possibilities he meant, Case replied, "Well, MediaOne," according to the

Post's

online edition.

AOL's financial support could be key to Comcast if it tries to outbid

AT&T

(T) - Get Report

for MediaOne. AT&T last week offered $58 billion for MediaOne, topping Comcast's month-old stock offer, which originally was valued at about $50 billion.

Big numbers are being tossed around, and with AOL now in the mix, "that makes things more exciting, but potentially more expensive," says merger arbitrage specialist Seth Washburne of

Washburne Capital Management

.

That excitement draws the options guys out of the woodwork. "Arbitrage guys are looking for a bidding war -- for AT&T to bump up their bid or for Comcast to do so. But the bid was high initially," says Washburne. The fact that this contest may not have another level negatively skews the arb potential. Besides, Washburne asks, does AOL really want to get in a bidding war with AT&T, which traditionally has been willing to sacrifice earnings dilution for acquisitions?

There are the odds against an all-out bidding war. Washburne estimates that Comcast is already willing to pay 19 times EBITDA, or about $5,400 per MediaOne subscriber. That tops the next-highest per-subscriber price paid in an acquisition, which was the $3.6 billion, or $3,600 per subscriber, paid by

Adelphia

(ADLAC)

for

Century Communications

(CTYA)

. "They're already paying a whole lot for the property," he says. "Do they want to bump it anymore?"

Otherwise, for options to be worth their salt, generally the deal needs to have a big spread or only one bidder in the mix. "If AT&T was making a hostile bid at 84 a share and there were no other bidders for MediaOne, trading at around 60, then you could buy calls on MediaOne. If the deal went through, you'd make money, and if not, you'd only lose the value of those calls," Washburne says. "But in a situation with multiple bidders, you don't need downside protection because you have another bidder. So sometimes when it's not a clean deal, there's just no reason to use options." Washburne says he has no position on the deal.

In other words, sometimes it pays not to play.

Morgan Stanley

was apparently a heavy buyer of

Applied Materials

(AMAT) - Get Report

May 55 calls, according to a

Group One

market maker in the San Francisco pit. "People are speculating that there's more volatility coming," he said. The semiconductor-equipment maker's stock was down 2 11/16 to 56 1/4, and the anticipated volatility could be coming from the company's earnings, which are due in mid-May.

There also was heavy call buying in

Pediatrix Medical Group

(PDX)

, a physician-management company which has seen its stock price oscillate after inquiries into the company's billing practices from attorneys general in Arizona and Colorado. The stock gained 1 15/16 to 18 13/16 by midday today.

Pediatrix acquires the practices of doctors who care for critically ill infants and women with high-risk pregnancies. Call buyers sent volume on the May 22 1/2 contract to 240, compared with open interest of 288. That action moved the premium up 3/16 ($18.75) to 9/16 ($56.25) per contract.