As the

Nasdaq Composite Index

gained Friday while the rest of the major market gauges slumped, some options traders were questioning whether it could continue a sharp advance.

"This is tough in this area here," said Jordan Kahn of

Kahn Asset Management

. The hedge fund manager said that in last month's bearishness, reflected in the

Chicago Board Options Exchange Volatility Index's

surge into the mid-30s and the CBOE equity put/call ratio's rise to 1.4, traders "did see signs of capitulation," which "bodes well that we put in a significant bottom." The question now, he said, is whether the market will be stuck in a trading range.

Judging from what Kahn's been doing lately, he sees stocks going higher, but not screaming into the stratosphere. Kahn said he's recently been utilizing spreads more than usual. For example, on beaten-down stocks, he said he's been buying calls, thus limiting the initial capital outlay, and selling call options with higher strike prices to offset the purchase price.

Meanwhile, one specialist on the

American Stock Exchange

said overall activity seemed "subdued." The trader said that individual investor interest in the market has been light.

Call options

continued to be a popular item on specialty chemical company

Engelhard

(EC) - Get Report

as the week wore on.

Volume Thursday was again heavy on Engelhard calls, helping pad an already hefty imbalance in open interest in calls compared to puts.

As of Thursday's close, 5,289 call option contracts had been opened, compared to open interest in just 470 puts, for a put/call ratio of 0.09.

Engelhard's stock was up 19 cents to $20.56.

On Friday, however, 500 December 17 1/2 puts traded on Engelhard. The

out of the money puts traded at 3/4 ($75). The trade took place at the ask price, suggesting that someone bought the puts.

There was no open interest in the December 17 1/2 puts as of Thursday's close, indicating that the trade there Friday was someone opening up a new position. Traders buy put options either as a bet the underlying security's price will fall, or to protect a long position.

Trading volume at the

Chicago Board Options Exchange

, the world's largest options exchange, continued to rise past record levels established in 1999, with 32.4 million options contracts traded in October, a 26% jump over the year-ago volume of 25.7 million contracts. Open interest, or the number of contracts in existence, in all CBOE-listed options stood at 50.9 million contracts at the end of the month, up 36% over the year-ago period.

The monthly total for October was the second-highest monthly total ever at the CBOE. The all-time monthly record was set in March when 35.2 million contracts traded.

Year-to-date average daily volume stands at a record 1.3 million contracts, 37% ahead of the year-ago period.