Options trading in

Sun Microsystems

(SUNW) - Get Report

was mixed Wednesday amid a massive selloff in the stock.

It tumbled $2, or 9%, to $20.25. Sun traded as low as $19.88 today, a 52-week intraday low.

Dan Brady of

Letco

, the lead market maker in Sun options at the

Pacific Exchange

, said that around midmorning no big buyers had come in to take positions in Sun in the wake of a bearish call on the stock by

Merrill Lynch

.

Merrill analyst Tom Kraemer today

sliced his rating on Sun to neutral from accumulate and he also trimmed earnings estimates on the tech giant. The move by Kraemer comes ahead of Sun's fiscal third-quarter midquarter update, slated for Thursday at 4:30 p.m.

For March 20 options, volume naturally was tilted toward

puts rather than

calls late in the morning, but volume for the March 20 calls hit nearly 2,200 contracts. The March 20 puts, meantime, traded around 2,700 contracts.

The price of those March 20 puts rose 5/8 ($62.50) to 1 3/4 ($175) on the P-Coast, while the March 20 calls fell 1 3/8 ($137.50) to 2 1/8 ($212.50). Puts allow traders to profit for a downward move in a stock.

Meanwhile, one options trader said the market looks poised for a bit of a near-term advance and that the

Nasdaq 100

could outperform the

S&P 500

over the short term.

"If I was

short, I'd cover," the trader said.

A major global investment bank yesterday sold a whopping 40,000

Intel

(INTC) - Get Report

April 35 calls. Intel stock rose 63 cents to $32.06 today.

Selling call options is a mildly bearish strategy. Investors sell calls on the hope that the options will expire worthless, or below the strike price. It was unclear whether the call selling done in relation to a large stock position in Intel. Investors often sell calls when they own positions in a stock that looks range-bound in the short term. The call sales generate capital through the premium the buyers pay for the option and, for an investor holding the stock, can offset a slip in the stock price and short-term malaise.

In this case, the investor is hoping that Intel's stock is basically going nowhere until the options expire April 20.

The

out-of-the-money April 35 calls fell 1/8 to ($12.50) 1 1/2 ($150) on the

Philadelphia Stock Exchange

this morning.

Whether it was merely rumors of a possible deal or actual leaked information, traders and investors piled into the normally lightly traded options on

New Era of Networks

(NEON) - Get Report

yesterday, ahead of a postclose announcement that

Sybase

(SYBS)

was buying the company.

Either way, though, most were losers as the takeover price wasn't as high as the most heavily traded of New Era's options.

New Era has average daily options volume of 509 contracts, according to

McMillan Analysis

. Yesterday, 2,172 contracts traded, 1,794 of which were calls, according to McMillan, with volume in the March 7 1/2 calls reaching nearly 900 contracts.

That action stood out because March 7 1/2 open interest (the total number of options contracts that have not been exercised or allowed to expire) was just 457 contracts as of Friday's close. Those March 7 1/2 calls were out of the money at yesterday's close. New Era closed at $6.94. The last trade on the March 7 1/2 calls Tuesday was 0.94 ($94).

Sybase stock plummeted $5.44, or 22%, to $19.06, while New Era, a business-to-business software systems integrator, rose 31 cents to $7.25.

Under terms of the deal, which was announced after 6 p.m. EST, New Era shareholders will receive 0.3878 shares of Sybase stock for every New Era share they own. Based on Sybase's stock trading at $19.06, the deal values New Era at about $7.39 a share, leaving the March 7 1/2 calls out-of-the-money.

Those New Era March 7 1/2 calls fell 7/16 ($43.75) to 1/2 ($50) on the

American Stock Exchange

on volume of 448 contracts.