The day before the day before Christmas and all through the options trading houses, creatures were stirring their trading mouses to snap up

America Online

(AOL)

options.

Traders in the America Online option pits were as busy as Santa's elves, especially in the new strike prices that were added as the stock rallied in the wake of the announcement AOL would be added to the S&P 500 on Jan. 1.

"I'm getting about 90 orders for AOL for every one I get in anything else," says an exasperated Rod Jamieson, options strategist for

Everen Securities

. "I was getting the team in holiday mode but I don't think we'll see it today."

At least, not in AOL. The Internet company saw a new parcel of options open for trading after its stock hit a new all-time high of 141 today in trading.

The stock closed yesterday at 122 7/8 on the

Big Board

then careened higher in late composite trading after the

S&P

announcement. It hit a then-new high of 138. AOL continued to rise upon opening this morning, hitting 141. The stock later gave back some gains and was 137 9/16, down 7/16, this afternoon.

The 15% price jump forced the creation of the new strikes, all of which became active early in the session. The January 140 calls saw the most action with 8,127 contracts trading at around 11, or $1,100 per contract. Also, the in-the-money January 130 and 135 calls saw 3,983 and 2,526 contracts go out, respectively. Even the deeper-in-the-money January 120s and February 130s were flying out the door like Santa's reindeer as traders looked to lock in gains.

One of the market makers on the

Chicago Board Options Exchange

who was trading AOL options says most of the fresh money coming into the newly trading options were buying calls. "They still think it is going higher," says the market maker, adding that the selling that was going on was in the lower strike calls, as investors closed those positions to buy into the 135s and 140s.

These bets are counting on a continued surge in AOL stock, which although it is one of the few Internet stocks to show a profit, is now trading at almost 430 times earnings. If you subtract the intrinsic value out of most of the in-the-money options, you are seeing an expectation of a 10- to 11-point surge by expiration, which is Jan. 15.

The AOL action dominated the market, which also saw heavy activity in tech stocks, such as

Intel

(INTC) - Get Report

,

Dell

(DELL) - Get Report

and

3Com

(COMS)

. "People can't get enough of this stuff," says Stewart Winner, director of retail options at

Prudential Securities

.

Overall, investors seemed confident enough to buy calls in a wide variety of stocks, engaging in some speculation that the market could be headed even higher in the new year, says Leon Gross, options strategist for

Salomon Smith Barney

. "This rally has shrugged off war and impeachment, and investors feel that there seems to be nothing now that could stop it."

Gross says he was advising clients to look at options on the S&P indices because they were getting very cheap. Because of the diminished volume over the next two holiday weeks, volatility has come in on the month of January. "The volatility index dropped almost 10% today, to 20.14, down 2.21. Anyone wanting to buy cheap protection or take a try at speculation, this is the way to do it is on the short-dated options," he explains.

Indeed, option action was hot on the

S&P 100

index, or OEX, which saw its January 610 and 630 calls move 7,000 and 2,899 contracts respectively. It was possible that an investor was rolling out his options to the higher strike price. The OEX index stood at 605.74, up 9.53, today in trading.

As originally published, this story contained an error. Please see Corrections and Clarifications.