Trading in

AT&T

(T) - Get Report

options was harried after the long-distance telephone and cable-TV titan tossed some bad news on Wall Street.

AT&T

warned that its earnings and revenue for 2000 will be less than anticipated, news that sent its stock swooning. The company also reported first-quarter earnings numbers, which met Wall Street expectations, but that news was overshadowed by its profit warning. In midafternoon trading, shares of AT&T were down 6 7/8, or 14%, to 42 1/8. AT&T also said it was cutting its payroll by 6,200 jobs by the end of the year.

That news prompted brisk options action in AT&T this morning, putting the company's contracts among the most active options traded on most exchanges.

The

out-of-the-money June 50 calls on the

Chicago Board Options Exchange

were seeing robust action with 9,657 contracts trading, but the price fell to 1 ($100), down 2 ($200).

On the put side, the July 45

in-the-money puts were active on the CBOE, with more than 6,000 contracts changing hands. The gloom-inspired volume jacked the premium on those puts up 2 1/8 ($212.50) to 5 ($500).

Meanwhile, options trading in main AT&T rivals

Sprint

(FON)

and

MCI WorldCom

(WCOM)

was relatively light.

This morning, one investor was expressing his love for

International Paper's

(IP) - Get Report

prospects with some heavy options trading.

The investor sold 3,000 June 35 puts and bought 3,000 of the June 40 calls, according to a floor source. Shares of International Paper, which last Tuesday made an unsolicited offer to acquire

Champion

(CHA) - Get Report

, were up 13/16, or 2%, to 37 13/16 in midafternoon trading. The day before the bid was announced, International Paper closed at 40.

In this case, the investor was seeking to use the 1 9/16 ($156.25) premium he took in on the June 35 puts to defray the 2 1/8 ($212.50) he paid for the June 40 calls.

The trade is obviously bullish, because both options represent long positions (selling puts obligates the seller to take the responsibility of buying the shares if the contracts are exercised.)

According to one of the option market's key sentiment indicators, the market's slight stumble Tuesday has notably perked up anxiety.

The CBOE equity put/call ratio has risen to 48 at midday from a close of 33 Monday. Also, the CBOE volatility index was up 5.23% to 28.75, a bit off its intraday high of 29.17. The CBOE index put/call ratio was at 2.35, up sharply from Monday's close of 1.5. To contrarian investors, the higher the negative sentiment, the better it is for the market. The aforementioned levels of anxiety, however, weren't obvious in the performance in the market's major indices, which were narrowly mixed.

Within the last week, there's been a comfort level reached with investors getting back into technology stocks as the sector, which was hammered last month, has improved, said Gary Semeraro, options strategist at

SG Cowen

in New York. Semeraro said that when the market fell markedly recently, the call buyers dried up completely, which indicates to him that maybe the market saw a capitulation.

Semeraro said he's been advising clients to sell either puts or calls to take advantage of the high premiums in the options market. Although implied volatility has decreased in the market lately, it is still high; however, many in the options market don't expect this to last forever.

Implied volatility is the annualized measure of how much the market participants think a stock or index can potentially move and is a critical factor in an option's price.

The strategist said that there's certainly money being put to work in the stock market and some of that money is also going into plays in the options market. He said he's been seeing market participants using some strategies with options such as selling at-the-money puts or spreading calls, to name a couple.

Volatility is good, at least for options volume numbers.

The CBOE said today that total volume on the exchange in April hit 28.4 million contracts, a 32% jump over the year-ago period. The exchange pointed out that it saw a single-day trading record on April 14 when 2.4 million contracts traded. CBOE open interest at the end of the month stood at 39.5 million contracts, a surge of 72% over the year-ago period.