Another major hurricane, corporate earnings and inflation worries are driving volatility higher in the options market.

The CBOE Market Volatility Index (VIX), which is based on the implied volatility of the S&P 500 options and is used as a gauge for fear in the market, was recently up 1.7% to 15.59. The CBOE Nasdaq Volatility Index, which measures the implied volatility of the Nasdaq 100, was recently up 2.2% to 16.84.

Yahoo! ( YHOO) options were active after the company released better-than expected earnings Tuesday afternoon. Ahead of those earnings, investors were anticipating strong results and buying the 35-line calls in most months. The buying continued Wednesday as the stock traded higher.

The October 35 calls have traded 18,500 contracts and were up 30 cents on the day. The November 35 calls have traded 6,500 times so far. As the stock rose on the earnings news, traders sold the October 35 puts 12,800 times.

The seller of the puts is expecting Yahoo!'s stock to close above $35 a share at Friday's expiration. The puts were lower by $1.55. The November 35 puts have traded 3,400 times and were down $1.35. Yahoo! shares were up $1.96, or 5.8%, to $35.66.

Chipmaker Intel ( INTC) released solid earnings last evening, but its guidance failed to excite investors. The October 22.50 calls have traded 5,400 contracts. Even though the calls are in the money, traders would have sold them at the open because of the premium priced into the options ahead of Intel's earnings.

Traders often price the front-month options higher heading into an earnings release because of the uncertainty of how a stock will react to the report. The October 22.50 puts have traded 4,800 times. With the stock trading above $23, these puts are worthless right now. The seller of the puts believes Intel will continue to trade above $22.50 at the expiration.

The January 25 calls have traded 15,200 times and were down 20 cents on the day, while the January 25 puts have traded 10,800 times and were up 40 cents. The stock was down 56 cents, or 2.4%, to $23.16.

Guidant ( GDT) shares were trading higher after the stock plummeted yesterday on concerns that its acquisition by Johnson & Johnson ( JNJ) might not take place at $76 a share.

The recent volatility is creating a trading opportunity. The majority of put options in Guidant were much lower Wednesday as some investors sold their long put positions for a profit. The October 65 puts have traded 9,100 contracts, and the November 55 puts traded 17,500 times. The November 60 puts were traded 19,000 times, and 12,500 contracts on the November 65 puts changed hands. The stock was up 41 cents, or 0.6%, to $64.51.

eBay ( EBAY) options were active ahead of its earnings release after the close, and traders were bullish. The October 42.50 calls traded 12,600 times, but they are currently out of the money with eBay's stock trading at $41.25. The buyer of the calls is expecting the stock to move above $42.50 after the release.

If investors are disappointed in the earnings, these calls would likely expire worthless.

The October 40 puts have traded 6,700 times and were down 35 cents on the day. Even though the puts are out-of-the-money, they still have a good amount of premium priced into them ahead of the earnings -- traders don't want to give anything away for free. The October 37.50 puts have traded 3,700 times. The stock was up $1.01, or 2.5%, to $41.43.

Other stocks that had high option activity were Oracle ( ORCL), Microsoft ( MSFT) and Citigroup ( C).

Oracle's January 2007 calls with a 12.50 strike traded 10,000 times. The stock was down 23 cents to $12.14. Microsoft's October 25 calls were swapped 13,000 times, and the stock was up 25 cents, or 1%, to $24.82.

For Citigroup, 10,400 contracts on the November 45 calls traded. The stock was losing 34 cents, or 0.7%, to $44.12.

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