Following a barrage of bad-news reports on Thursday, the shares of American International Group (AIG: sentiment, chart, options) have surged 15% this morning on a significantly more upbeat report. According to The Wall Street Journal, federal officials are considering alternatives to make the terms of its loan to AIG less financially daunting.

The paper reports that the government may backstop AIG's credit default swap contracts, and it's also considering a reduction to the interest rate on the $85-billion loan. The feds may also extend the duration of the 2-year loan facility.

Meanwhile, the Federal Reserve reports that AIG continues to chip away at its debt. For the second consecutive week, it has reduced the amount that it owes the U.S. government; its debt now amounts to $81.2 billion.

The shares of AIG are trading near $2.15 per share, which means that calls are the option of choice nearly by default, despite the insurance firm's ongoing struggles. During the past 10 days, the stock has garnered an International Securities Exchange (ISE) call/put ratio of 4.35. This indicates that traders have purchased more than 4 times more bullish bets than bearish, and the ratio ranks higher than 99.6% of other such readings in the past year -- suggesting a near-peak of optimism among traders on the ISE.