After a high-volume, late-day upward spike, Overture fell $1.85, or 6%, to close at $29.02. In after-hours trading, the stock fell an additional 91 cents.

At the market's close, Overture issued a press release disclosing that it had extended its current contract with AOL until April 24, to give the two companies time to negotiate a contract extension. The contract had been set to expire this month.

In recent months Overture's shares have risen and fallen sharply in response to news about its relationships with its affiliates. Companies including AOL Time Warner's (AOL:NYSE - news - commentary - research - analysis) AOL use Overture's search engine on their Web sites in return for a slice of the advertising revenue that Overture reaps. Overture gets the revenue from marketers who pay for prominent placement in the listings that pop up in response to search queries on specific terms.

Even though the company has said that it set its 2002 financial targets assuming that the year-and-a-half-old AOL deal wouldn't be renewed. But that hasn't deterred investors from regarding the AOL contract -- as well as a separate contract with Yahoo! (YHOO:Nasdaq - news - commentary - research - analysis) due to expire later this year -- as important barometers of Overture's financial prospects.

Short-sellers in the company argue that even if Overture wins a contract extension with AOL, the company will inevitably suffer because it will have to hand over a greater portion of ad revenues to its affiliates than it currently does.

One Overture short-seller, speaking on condition of anonymity, said Friday afternoon that closing the deal was more important to Overture than it was to AOL. "They are playing poker now. The stakes are high, and AOL knows they have [Overture] over the barrel," said the short. "Any bad news and they can cut the value of this company in half."

The short said that because Overture did contribute significant money to AOL's bottom line, the deal would eventually get done. But, said the short, the economic terms would likely improve for AOL. "Don't get excited about the deal closing when it does close, without looking under the hood," said the short.