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Options Traders Rediscover Iomega Calls

After month upon month of battering



, investors may be wondering if it's time to give the former highflyer a chance to regain its wings.

Iomega, supplanted only this week by



as the '90s bull market poster child, is enjoying some good feeling in the nation's options pits. Traders are staking out some inexpensive, mildly bullish positions.

With its shares trading up 11/16 to 9 1/8, Iomega's call options were among the volume leaders in this morning's trading. Heading the pack were the May 10 calls, with traffic of more than 7,000 contracts. But not all traders focused on the near-term options. More than 2,600 of the August 10 calls changed hands and jumped 7/16 ($43.75) to 1 3/16 ($118.75) by noon.

Iomega's options were busy yesterday, too. The May 7.5 calls posted volume of 6,500 contracts and the May 10 calls traded 2,844.

Some strategists warned, however, not to read too much bullishness into the Iomega activity. "At some of those prices, you can almost ignore the volume," said


analyst Paul Foster. "Maybe the stock is valued low enough for it to be taken over or maybe it's the news that the company is selling some technology to


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." The price of the May 10 calls was on the light side but did double, rising 3/16 ($18.75) to 3/8 ($37.50).


Arbitrageurs and options traders are carefully watching the developing situation between

Bank of New York

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Mellon Bank


. BoNY is attempting to buy the Pittsburgh bank for $23.7 billion in a hostile deal -- a rarity for the banking sector. Mellon has already spurned the offer, saying it is not for sale.

Some arbs watching the action said it is unlikely the deal will remain hostile, saying BoNY likely will up its offer to make the deal friendly. "They say there are not hostile bank deals or utility deals, but most often these hostiles become friendly, or another buyer enters the picture," said one arb.

Options traders, who have exhibited hair-trigger reactions to merger talk much less credible than BoNY's bid for Mellon, were uncharacteristically subdued in chasing the deal. Mellon was trading up 7 3/8 to 77 1/4, but the speculators weren't near the estimated $90-a-share takeover price. Mellon calls traded mostly at the 80 strike, with the June options nearing 1,500 by midday. The May 80 calls were quiet, with only 530 contracts swapped.

With four weeks left in the May expiration cycle, there didn't seem much sense in making front-month plays, traders said, especially in the case of a hostile bid. Foster's hunch was to avoid it, for now. "There's going to be a counterbid," he said. "I think Mellon wants to look for a better partner."

The two banks were in friendly talks for a merger last year, but the deal broke down, reportedly on concerns over who would run the combined firm. Another source speculated this hostile deal could be BoNY's way of getting Mellon back to the negotiating table.


Is someone sniffing around

Bear Stearns


? The big New York brokerage is seeing some unusual out-of-the-money call action today. The volume on Bear's May 65 calls -- about 325 -- won't send traders running for cover, but it looks strong compared with the slight 232-contract open interest.

One trader in the Bear pit said the premium on the options was rich, up 15/16 ($93.75) to 1 15/16 ($193.75). With Bear's shares trading just above 61, up 1 11/16 on the day, the call buying is regarded as fairly aggressive. The May 60 and June 65 calls also showed early triple-digit volume.

With takeover froth continuing to build in the securities industry, Bear is as likely as any of the other oft-mentioned brokers --










Robbie Stephens

, you name it -- to get acquired or have enough rumors swirling it around to juice the stock and options prices.