IS THERE SOMETHING amiss in the options market?

Traders have been asking that question in the wake of a series of suspicious bets involving some large companies. Three times in a single week last month, member firms at the major options exchanges placed aggressive bets that shares in a particular company would tumble -- right before they tanked on disappointing news.

The trades during the week of April 1 -- involving options on PeopleSoft, Bristol-Myers Squibb, and International Business Machines -- have sparked investigations by the Chicago Board Options Exchange and raised the ire of traders who believe people with advance knowledge of corporate news are using the options pits to profit unfairly.

Throughout the exchange-traded options industry, veteran traders say questionable flurries of late trading in bearish "put" options have become easier to execute on a large scale in the past two years. This follows the advent of multiple listings of the most popular contracts at all five major markets, which was adopted at the behest of regulators to increase competition and pricing.

Under the new system, the major exchanges essentially can split up large orders, allowing customers to get contracts from a wider number of market players. Under the old structure, options for a specific company were traded only on one exchange, and option buyers could obtain only as many contracts as were available on that exchange.

This multiple listing also means investigating suspicious trades requires unprecedented cooperation among the CBOE, American Stock Exchange, International Securities Exchange, Philadelphia Stock Exchange and Pacific Exchange. "It's like you can rob five banks at once now," says options trader David Palmer, of AGS Specialist Partners, who noticed that the Bristol-Myers trade originated with an order at CBOE, but was also partially filled in the Amex, where he trades. Traders at Philadelphia Stock Exchange also confirmed filling part of the order. "You can just play the exchanges against one another," Mr. Palmer adds.

A put option conveys the right to sell 100 shares of a company's stock at a specified price anytime before a set expiration date. As the underlying stock's price drops, particularly if it falls below the option's specified "strike price," the option becomes more valuable because it effectively allows the holder of the option to lock in an above-market value for the stock.

Whether there was any wrongdoing in the early April trading hasn't been determined. In such investigations, exchanges and regulators say it often is difficult to discern whether someone has simply made a lucky market call at the right time, or profited by trading on advance information. Traders who have lost money often perceive that someone else had an unfair advantage, even if none exists, CBOE spokeswoman Lynn Howard-Reed says.

"People make trades for a lot of different reasons, so you have to be careful when you say something looks suspicious," she notes.

CBOE spokesmen confirm their exchange is conducting a "routine investigation of unusual trading activity" in each of the three companies' options. CBOE declined to provide details, including the dates of the trades being investigated, though traders remain focused on the early April volume. Spokesmen for the Securities and Exchange Commission and the other four major options markets declined to comment. There is no indication that anyone at IBM, PeopleSoft or Bristol-Myers are targets of the investigations.

According to interviews with traders, private market analysts and data from the Options Clearing Corp., which guarantees every trade on the major options exchanges, the week of unusual trading began April 1, with PeopleSoft options.

Traders say the PeopleSoft options market was quiet all day that Monday -- until an intensive afternoon round of buying. By the end of the day, according to OCC data, puts would account for a higher-than-normal 74% of PeopleSoft volume, despite a lighter-than-usual trading day.

Jerry Wang, market strategist for Bernie Schaeffer Research, says the largest afternoon trade, at 2:22 p.m Eastern time on ISE, was for 600 put options, giving the buyer of the options the right to sell PeopleSoft at $30 a share. At 2:24, there was another 600-contract trade at $35 a share on ISE, he said, noting that such a pattern may indicate one large order was filled piecemeal.

Shortly after 4 p.m, PeopleSoft warned that first-quarter revenue would fall short of expectations. The next day, its stock declined 33%, or $12, to $25.16 a share on the Nasdaq Stock Market.

The stock movement meant the buyer of the two big put-option contracts purchased April 1 stood to make a profit of at least $1 million.

Two days later, Bristol-Myers issued a profit warning after the market closed -- but not before two brokers tried to buy options conveying the right to sell up to one million of the drug maker's shares. Around 3:50 p.m., when the stock was trading around $37, two large brokerage firms each placed orders to buy 5,000 Bristol-Myers puts at the CBOE, according to broker Tom Pruter of StoneHedge Securities. Half of the contracts gave the options buyer the right to sell Bristol-Myers shares at $35, and the other half were for $40.

Of the 10,000 contracts that were ordered, it isn't clear precisely how many were filled. Traders at CBOE said they filled "several thousand" and traders at the Philadelphia Stock Exchange said they filled between 300 and 500. Only about 200 were filled on the American Stock Exchange, where the large orders raised eyebrows. "We definitely didn't fill many, because we thought it was a rigged order," Mr. Palmer says. "What they did was wrong, and it's not the only time it's happened."

Bristol-Myers stock fell 17% to $32.16 the next day, meaning that the buyers of the put options stood to make a profit of about $5 million if they managed to completely fill their 10,000-contract order.

Then, on April 5, came the third questionable activity of the week, involving heavier-than-normal trading in IBM puts. Of the 62,037 IBM options that changed hands, an unusually high 70% were bearish puts, according to OCC. The Friday session was the last before IBM announced, shortly before trading began Monday morning, April 8, that first-quarter revenue and earnings would fall well short of expectations. Its shares tumbled more than 10%, to $87.41, on the New York Stock Exchange.

Many of the put contracts bought on Friday gave investors the right to sell IBM shares at $95. This means that someone who bought 1,000 contracts would have been in a position to pocket a profit of about $800,000.

Proving that the trading was illegal, in violation of laws that prohibit on trading on inside information, could be difficult. While some traders strongly believe the activity was unusual, one trader at the Pacific Exchange says he didn't see anything suspicious about the day's volume.

Kevin Keller, a CBOE trader who is the head of the Chicago Market-Makers Association, says such disagreement over what constitutes suspicious trading demonstrates how difficult it is to establish whether orders were placed by someone with knowledge of corporate news before it is announced publicly.

"Everybody knows about it, and it's part of our business," he says of late put-option trades in general. "There never has been, and probably never will be, an equal exchange of information as long as you have people employed by companies who can leak information to friends or whomever. Maybe they trade on that information. But it could just be that someone had a hunch and bet a bunch."

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                    One Week in April 

  The Chicago Board Options Exchange is investigating trades of 
PeopleSoft, Bristol-Myers Squibb and IBM options. During the week of 
April 1, member firms placed aggressive options bets that shares in 
these companies would tumble, right before the stocks fell on 
disappointing news. 

  April 1 

  -- PeopleSoft `put'-buying takes off inexplicably, with bearish bets 
accounting for 74% of PeopleSoft volume by the end of the day. The 
largest afternoon purchases being two 600-contract trades at the $30 
and $35 strike prices. 
  -- Shortly after market close  Shortly after the close, PeopleSoft 
warns that first-quarter revenue will fall short. 

  April 2 

  -- PeopleSoft shares plunge 33% to $25.16 a share, well below the 
price locked in by by buyers of the $30 and $35 options. Sales at the 
higher prices would reap as much as $3.9 million, compared to the $2.8  
million PeopleSoft stock will fetch on the open market on April 20, 
when the options expire. 

  April 3 

  -- Around 3:50 p.m. EDT  Bristol-Myers shares are trading around $37.  
Two large brokerages place orders to buy 5,000 Bristol-Myers puts each 
at CBOE at the $35 and $40 strike prices. 
  -- Bristol-Myers announces an earnings shortfall and the firing of a 
key executive. 

  April 4 

  -- Bristol-Myers stock plunges 17%. If the two large orders leading 
up to the previous day's were completely filled, the resulting options  
position could've been exercised for as much as $37.5 million in 
Bristol-Myers stock, which otherwise would've been worth $32.5 million  
on April 20. 

  April 5 

  -- More than 70% of the IBM options that change hands, are puts. The 
total put volume of  39,147 contracts is more than 59% above IBM's 
daily average. 

  April 8 

  IBM announces that its first-quarter revenue and earnings will fall 
short just before trading for the new week begins. IBM stock tumbles 
more than 10% on the day at the NYSE. Correspondingly, premiums on IBM  
put options jump significantly, in some cases quintupling to $10 from 
$2.