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If you're thinking about playing the online brokerage and market-maker takeover game Tuesday via the options market, you'll be paying up for the pleasure, or discomfort, as the case may be.

Online brokerage stock and option prices, along with the stock of


market-making giant

Knight Trading


, perked up in the wake of news that

National Discount Brokers


had received a takeover offer of $49 a share from a

Deutsche Bank


Still, the confirmation of negotiations between Deutsche Bank and National Discount Brokers, or NDB, had added enough fuel to the sector Tuesday morning to make options prices prohibitively high. It appeared some options traders were nibbling on online brokers; however, volume overall was negligible.

Deutsche Bank through its affiliates owns about 16% of NDB. The company said it's continuing to talk to Deutsche Bank about its proposal. NDB said it has also "received inquiries" from other firms about a "strategic merger" or a "possible acquisition" of NDB.

As online brokers' stock prices have been pummeled and individual investors' enthusiasm has been dampened by a falling


market, consolidation among some of the sector's midsized players has been expected. Yet, little had materialized until the NDB deal.

Online brokers and market maker Knight for that matter have been the subject of takeover conjecture in the past. On Tuesday, the implied volatility on the options on the stocks has surged, helping along with the rise in their stock prices, increasing the price of buying options on the stocks. Overall options trading on the online brokers and Knight appeared to be more retail rather than institutional, said Paul Foster of

in Chicago.

Options volume in Knight was more aggressive than in






, Foster noted. Implied volatility (a key component of an option's price that typically rises with demand or uncertainty) on Knight options was up to 98-100 from 78-79 Monday, he said. Implied volatility is the annualized measure of how much the market thinks a stock or index can potentially move.

Shares of Knight, which has recently been battered, surged $1.38 to $26.44.

That rise sparked some volume in the October 30 calls on the


, with 155 contracts trading, up 3/8 ($37.50) to 3/4 ($75). A call is a type of option that gives the purchaser the right, but not the obligation to buy a security for a specified price at a certain time, and is for the most part a bet the stock will go up.

Knight has been the topic of takeover speculation in the past, notably after

Goldman Sachs


announced it was buying Nasdaq market maker and specialist firm

Spear Leeds & Kellogg

, which is privately held.

Among some of the online brokers enjoying green were E*Trade and Ameritrade. E*Trade was up 44 cents to $14.50, while Ameritrade added 75 cents to $14.88.

As for E*Trade options, there was a bit of chewing on the out-of-the-money October 17 1/2 calls on the Amex, where 139 contracts changed hands, suggesting that there aren't many big institutional players in the market trading the online broker's options. The calls were up 3/16 ($18.75) to 3/8 ($37.50).

The trading in the calls could be investors buying the calls, taking a long shot on the chance that E*Trade's stock will be revived either by takeover speculation or by the belief that the stock has bottomed out and is ready to bounce.

If the majority of the trading was traders buying calls, they'll have to hope something huge happens with E*Trade's stock relatively soon, considering the options expire on Oct. 20.

Trading in Ameritrade options was even more subdued than that of E*Trade's options.