http://online.barrons.com/article/SB118764638869703374.html?mod=googlenews_barrons Edgy Options Traders Want More THE STRIKING PRICE DAILY By STEVEN M. SEARS NO GOOD DEEDS GO UNPUNISHED. That fact of life, which is embroidered on a couch pillow in the office of one of the options-exchange chairmen, personifies the current mood toward the Federal Reserve's recent discount-rate cut. Sure, the rate reduction saved equity prices a day after severe market volatility dropped the Standard & Poor's 500 index within 50 points of 1200. But now, with a weekend of rumination, investors seem to have concluded that things are still really bad, but maybe not as scary. After all, a discount-rate cut doesn't really solve all the woes introduced by an easy-credit cycle. What skittish investors really want is a full-fledged interest-rate cut, which would make them happy. "It would seem that the oversold rally has more room to run, but it didn't show a lot of power on Monday. Longer term, we still expect to see a retest of the lows of last week -- at least the closing lows," says Larry McMillan, principal at McMillan Analysis, which also manages money. The risk premium, as measured by implied volatility of put options, is still preternaturally elevated even as the options market's fear gauge settles lower. The Chicago Board Options Exchange's market volatility index (VIX) was recently down slightly at 26.13. Yet, measures of options-trading patterns still indicate that investors are nervous, and not interested in equities. This stands in contrast to recommendations from many market strategists to buy mega-cap stocks with significant international revenue streams. Meanwhile, special situation trading still abounds as investors, generally professionals, use options to tailor their equity exposure. In the beleaguered mortgage company, Countrywide Financial (CFC), buyers have emerged for the January 30 calls that expire in 2009 -- a likely bet that the company resolves its problems by then. In Citibank, a seller emerged for the January 55 calls that expire in 2009; the stock is trading around $48. Ever present is concern about the state of the American consumer, whose consumption powers the economy, and thus, it is of great import to the market's well-being if people are able to spend money at Target and other such places. So, Target's earnings report is also an indication if John and Jane Consumer have the wherewithal to shop till they drop even as the housing market tumbles, oil prices remain high, and it becomes tougher, and more expensive, to borrow money. Well, the consumption seems as strong as ever. Target reported a 12.6% increase in second-quarter earnings and reaffirmed full-year earnings guidance. With the stock up slightly at about $59, Target's September and October 62.50 calls traded actively, suggesting investors are looking for incremental gains over the next two months. Meanwhile, investors may want to keep an eye on Atmel. Options on the semiconductor company are unusually active, suggesting to Susquehanna Financial Group that the stock could trade higher in the next few weeks. In the previous session, investors bought more than 7,000 out-of-the-money September 5 calls, and the trading has continued today, and extended into the November 7.5 calls. The company is expected to report third-quarter earnings Oct. 25.