The institutional appetite for Google (GOOG) - Get Report isn't going away.

Over the weekend, Chicago-based Citadel Investment Group disclosed that it owned call options exercisable into 3.5 million shares of Google stock.

Exercising those options would make Citadel the third-largest buyer of Google stock since the search engine's August initial public offering, according to public filings. Citadel's holdings would place it behind only mutual fund giants Fidelity, which in early September

said it owned 5.2 million Google shares, and Legg Mason, which in October

disclosed ownership of 4.3 million shares.

Citadel's filing spotlights the supply/demand at issues at work in the meteoric rise of Google's stock during its three months in the public eye.

With Google's stock going from an IPO price of $85 to as high as $201.60 earlier this month, market participants say that one of the principal causes of the rise is the shortage of freely available stock to trade. In fact, by

TheStreet.com's

calculation, the holdings of a few major shareholders account for more than 40% of the float.

But with lockups on insider ownership slated to expire over the next several months -- starting with an expiration this Tuesday that could more than double the current float -- Google's shares could lose their scarcity value, and the stock could plunge as a result. Meanwhile, skeptics of the stock's current price point to the ever-intensifying competition between the company and fellow Net titans

Yahoo!

(YHOO)

and

Microsoft

(MSFT) - Get Report

.

Yet Google bulls insist not only that the stock is fairly valued, but also that rising demand

will offset the downward pressure of any new stock that comes on the market.

On Monday, Google's shares rose $2.70 to $184.70.

Citadel didn't reveal the strike price of its call options, which it indicated it acquired by Nov. 5. Nor did the firm reveal whether it has since exercised those options.

Buying call options is one way of betting that shares in a company will rise. Still, it's unknown whether Citadel is actually bullish on Google, or whether the options purchase is part of a larger trading strategy that might encompass a bet on the stock's volatility or the hedging of a short position in the stock.

A Citadel representative declined to comment Monday.

The tight-lipped Citadel is headed by Ken Griffin, whom

Fortune

magazine in September judged the eighth-richest American under 40, among those who didn't inherit wealth or earn most of it outside the U.S.

Citadel managed $9.5 billion as of year-end 2003, according to

Institutional Investor

, and manages funds including Wellington Partners and Kensington Global Strategies. The firm estimates that it accounts for 1%-2%of the combined total daily dollar volume traded on the New York and Tokyo stock exchanges, reports

II

.

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