Faithful to

tradition, the market has staged a nice rally over roughly the past week, and as this predictable seasonal strength ends, some options pros say it might be a good time to take some profits.

The market has had a "hell of a rally," said Jay Shartsis, options strategist at

R.F. Lafferty

in New York, mentioning the traditional market rally that occurs over a period of about a week this time of year. Shartsis said today might be a day to take some profits.

Last Friday, Larry McMillan of

McMillan Analysis

offered clients an idea that he said has been profitable for 21 of the past 22 years, based on the closing prices of the

S&P 500

. The trading proposition called for investors to buy

S&P 100

, better known as OEX, call options at the close of trading Oct. 27 and sell the position on the close of trading Nov. 2.

The details of the trade suggested by McMillan: Buy three OEX calls that are one strike price in-the-money at the close of trading Friday, which would've been the November 725 calls. That day, the last trade on those calls was at 22 1/2 ($2,250).

Then investors should sell one-third of the calls if the OEX jumps 15 points, and sell another third of the calls if the OEX rallies another 15 points on top of the previous 15. "Finally, no matter what, sell all

remaining calls at the close of trading on Nov. 2," he wrote.

On Thursday, the November 725 calls were down 1/2 ($50) to 33 1/2 ($3,350) on Thursday. It looks like that trade is going to be profitable 22 out of 23 years.

Perhaps the news out Thursday was what investors who've been speculating sporadically over the last couple months on

Fairfield Communities

(FFD)

options have been hoping for.

Thursday morning

Cendant

(CD)

, the franchising behemoth, announced it is buying Fairfield for $15 a share, a 14% premium to Fairfield's closing price Wednesday of $13.13. Cendant said at least 50% of the purchase price will come in cash; the balance will either be in cash or Cendant stock, at Cendant's election.

The final buyout price may be as high as $16 a share, however, depending on a formula based on Cendant's average trading price over a 20-day trading period. Cendant said it expects the deal to close early next year and that it will be immediately accretive to earnings.

At

various

times

over the past couple of months, options volume and the prices of the options on Fairfield's stock drew the interest of options-market watchers who make their living watching such patterns.

On the news, shares of Fairfield jumped $1.06, or 8.1%, to $14.19, while Cendant advanced 38 cents to $12.44.

Call volume on Fairfield was healthy Thursday on the news. However, a good portion of the volume could be from traders closing out positions by selling calls back. Heaviest volume was in the November 10 calls and November 12 1/2 calls. The November 10 calls were up 7/8 ($87.50) to 3 7/8 ($387.50). The November 12 1/2 calls were up 7/16 ($43.75) to 1 3/4 ($175) on volume of 1,116 contracts. There was some interest in the out-of-the-money November 15 calls, which were trading down 1/16 ($6.25) to 1/16 ($6.25) on volume of 240 contracts.

The contrarian school of thought would be crowing about the lessons learned from the recent action in

Aon

(AOC)

, considering what has

happened to the stock today.

Last Friday, call option volume on Aon exploded. The volume in the calls alone vastly outstripped the average daily volume for Aon options. The price of Aon options also soared.

In addition, the number of call option contracts far outstripped the number of put options that have been created on Aon as of Friday's close. Total call option open interest as of Friday's close stood at 7,689 contracts, while open interest for puts totaled a paltry 635.

To contrarian investors, who believe strong sentiment in one direction is a signal that a cycle is ending and a stock or sector will soon reverse course, excessive affection for a stock or sector is bearish. All that call open interest compared to the feeble put option open interest reflected a huge amount of bullishness on Aon. Contrarians would've won this one.

The action last week perhaps came ahead of Thursday's earnings report. But if traders were anticipating glory for Aon, unfortunately for them, the news was a disaster.

Aon, a Chicago-based insurance brokerage, posted third-quarter earnings of $139 million or 53 cents a share, a penny shy of the

First Call/Thomson Financial

13-analyst estimate of 54 cents. The third-quarter earnings were a touch above the year-ago earnings of $138 million or 52 cents.

The company also said that its board "approved, in principle," a revamp of its business. Aon estimated that the total pretax costs related to the reorganization to be between $250 million and $325 million, most of which will be recorded as a restructuring charge beginning in the fourth quarter. The revamp will result in the slicing of 6% of its workforce, or 3,000 jobs of the 50,000 of Aon's worldwide payroll.

The news sent Aon's stock in freefall, tumbling $7.75, or 19.1%, to $32.88.

On Friday, Aon closed at $39.94. Around midday that session, the November 40 calls were trading at 3 1/4 ($325). On Thursday, the calls were bid at 1/8, with no trades. As of Wednesday's close, open interest, or the number of contracts in existence, in the November 40 calls stood at nearly 3,100 contracts.

The

Options Industry Council

announced that new records for daily and monthly volume, and equity open interest, were set in October.

October volume totaled 70 million contracts, which broke the previous monthly record of 66.2 million contracts, which was set in March. The October volume figure was 58% above the year-ago period.

Also, a new record was set for average daily volume in October at 3.2 million contracts, breaking the old record of 2.9 million contracts set in March. On Oct. 20, equity open interest stood at 74.9 million contracts, which broke the previous record set on Sept. 15 at 66.4 million contracts.