You really didn’t believe Microsoft (MSFT, $29.56, down $0.42) was totally “walking away” from Yahoo (YHOO, $27.85, up $0.19) did you? In case you haven’t heard, Microsoft has entered into discussions again about a deal with Yahoo. Although this doesn’t mean a full buyout is expected, Microsoft said it “reserves the right to reconsider that alternative depending on future developments and discussions.”

The timing of the announcement comes on the heels when many believe Yahoo is still trying to work out something with Google (GOOG, $583.71, up $3.64) perhaps as soon as this week. It is clear with the latest developments that Microsoft is trying to block a Yahoo/ Google partnership.

No doubt, things are heating up and Microsoft seems to be racing to the finish in its attempt to battle Google. It’s no surprise either that Yahoo’s call options are active today. The June 27.50 calls (YHQFY, $1.57, up $0.15) have traded over 18,000 contracts thus far and the June 30 calls (YHQFF, $0.52, up $0.08) have seen 14,000 contracts trade by lunchtime.

Rick Rouse