Sun Micro Gets a Big Kiss from Options Trader

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There are big prints, and then there are

big

prints. Late this morning, the latter variety went through the

Sun Microsystems

(SUNW) - Get Report

options pits at the

Pacific Exchange

and prompted rampant speculation.

In blocks of 5,000 contracts, an institutional buyer snapped up more than 15,000 of Sun's September 50 calls. That trade -- with Sun at around 47 -- was all the priming that the rumor mill needed to start spitting out scenarios of an

IBM

(IBM) - Get Report

bid for the company. Whether that one will ever become reality remains a question. What it did to Sun shares and options has been answered.

Takeover trading has always been a part of the options market, but recently the telegraphing has been more clear. Indications of

Ascend's

(ASND) - Get Report

acquisition of

Stratus

(SRA)

came out of that

corner of the world just last week, but such slam-dunks are rare for traders.

Options desks were buzzing this afternoon with other news about Sun trading. As for the 15,000 contracts that landed hard in the options pits, the word was that the investor had either sold out of the stock or shorted the shares, and bought into the options to maintain a long hedge. One trader close to the deal said the client was positive on Sun's fundamentals and wasn't necessarily speculating on an IBM bid or lack thereof. "It was bullish -- he wanted to swap out of the shares and into the options," the trader said.

The September 50 calls traded at around 3 1/2 ($350 per contract), up 2 1/4 ($225) on the session. Open interest on the options stood at 1,963 at today's open. A Pacific Exchange floor trader said the buy was a speculation on Sun's volatility during the next month.

In turn, other Sun options got busy after the big trade. An investor wrote 1,000 January 2000 calls at the 45 strike price for 16 ($1,600) as the company's shares ran up 3 3/4 to 49 3/16. That kind of juicy premium is bound to attract call-writing on a larger basis as the rumors play themselves out. There was also activity in the August 50 calls, which posted volume of 2,500, and the August 55 calls, where 1,119 contracts changed hands.

Today's M&A rumors follow an announcement that the companies are planning to co-develop an operating system for business computers based on Java, the software language developed by Sun.