By Jud Pyle, CFA, chief investment strategist for the Options News Network

Big call activity in

Allstate

(ALL) - Get Report

about a week before May expiration -- and the last trading day before earnings are announced -- suggests that at least one investor is participating in the relief rally by buying short-dated calls and selling longer-dated call options hours before the company is scheduled to report first-quarter earnings.

Looking at the Oct. 35 calls, we see that more than 31,500 contracts changed hands in the first hour of trading Thursday. Current open interest of these call options is just 309. Taking a look at the May 27.5 calls, we see about 33,800 contracts traded vs. current open interest of 33,400. It looks like an investor bought to close his stash of Allstate May 27.5 calls with little time to go before expiration, rolling them out to the Oct. 35 series, where he sold to open the calls, presumably hoping that this stock will continue to stay below $35.

Coming off of

Prudential's

(PRU) - Get Report

19% rally today on the heels of a positive earnings announcement last night, this customer most likely bought to close the May 27.5 calls for about $1.40 and sold to open the Oct. 35 calls for about $1.40 per contract. Implied volatility for the May 27.5 calls is 81.8, while implied volatility for the Oct 35 calls is 51.2.

Allstate shares closed at $27.60, up about $1.80, or almost 7%, from yesterday's close. The company was scheduled to announce earnings after the market close. Analysts anticipate Allstate earnings per share could be $1.24 this quarter following a loss of $2.11 per share in the same period last year.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."