With a 50 basis-point interest rate hike likely in the offing and concern about inflation lingering, the gold bugs and their single-digit stock prices may no longer be the market's most trod-upon sector.

Action in the options market today may be pointing toward some spark of interest in gold as an asset, with unusually heavy volume cropping up in the

Philadelphia Stock Exchange

Gold/Silver index contract -- known as the

XAU

-- this morning.

"Gold has gone from being a mandatory 10% of an investor's portfolio to being like it doesn't exist," says Jay Shartsis, the senior options strategist at

R.F. Lafferty

in New York. "But the market cap of the sector has gotten so low that any shift back can bring an explosion."

The XAU was up almost 4% from the get-go this morning, as traders bid up key components such as

Newmont Mining

(NEM) - Get Report

,

Homestake Mining

(HM)

and

Placer Dome

(PDG)

.

The spurt was somewhat unexpected, especially in the wake of a report yesterday from

Lehman Brothers

(LEH)

analyst Peter Ward, downgrading four major gold names.

Options action came early and often on the XAU. Before 11 a.m. EDT, more than 3,000 of the in-the-money June 50 calls and 1,000 May 55 calls had traded. It appeared to be action inspired by buyers and while the price of the June 50 calls rose only 3/4 ($75) to 12 3/4 ($1,275), the market for the contract had risen 13 1/2 to 13 5/8.

By midday, the XAU was up 2.32 to 62.12.

Open interest on both call options was slight and was far outstripped by today's action. If the volume seen today was indeed initiated by buyers, it would indicate some significant interest in a bullish play on gold. If the call action came from sellers, those players would essentially be speculating on a weak finish to the month for contract.

Newmont calls were also busy. With the stock up 15/16 to 27 3/16 before midday, the June 27 1/2 calls traded more than 500 contracts and spiked 1/4 ($25) to 2 1/2 ($250).

Shartsis says the rebound in Newmont has been impressive. After being battered for the better part of the past year, Newmont is up more than 20% since March 2.

"There's no real news propelling it either, and that's impressive," he says. "It's been a long night for gold stocks. Gold is the antithesis of the paper money explosion ... but has the world changed so much that gold isn't considered money anymore?"

Calls were also busier than normal in Homestake, which was up 5/16 to 6 7/8, and Placer Dome, up 1/4 to 9 3/8.

Tellabs

(TLAB)

options perked up this morning as call buyers rolled the dice on some out-of-the-money calls.

With the stock up early to just over 50, more than 2,100 of the May 55 calls crossed the transom and rose 1/4 ($25) to 1 1/4 ($125) on the action. Out-of the-money calls have strike prices higher than the current share price of a stock and are typically used to speculate on rapid price appreciation.

Since that action, though, Tellabs shares have receded, but were still up 11/16 to 50 3/8. The price of the option had stalled as well. The 1 1/4 paid early in the session remained as the day's high for the contract and the market was now 15/16 to 1 3/16 for the May 55 calls.

Tyco

(TYC)

was getting some love from options traders today -- ahead of the IPO of its

TyCom

fiber optic unit.

TyCom's business focuses on undersea fiber-optic networks and services and has priced its shares between 20 and 25 per share, according to a

Securities and Exchange Commission

filing.

Tyco bulls apparently liked the move, and snapped up more than 6,000 of the out-of-the-money May 50 calls, running the contract's price 5/16 ($31.25) to 1 1/2 ($150). Tyco shares were up 1 5/16 to 48 1/8 at midday.