Ahead of the generally sobering

Federal Open Market Committee

meeting, Wall Street is showing its colors, tempting opprobrium by throwing money willy-nilly at takeover rumors.

Options Buzz: Join the discussion on

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Newbridge Networks

(NN)

, the walking dead of takeover rumors. The company's potential as a target again made the rounds this week, with

Tellabs

(TLAB)

surfacing among names mentioned as

potential suitors.

"This is one of those rumors that just will not die," said Peter Eberle, Tellabs option market maker with

Oppenheimer Noonan & Weiss

on the

Pacific Exchange

.

On Tuesday, call activity powered past puts. February 30 calls were among the most active of Newbridge Networks' options, with roughly 5,200 contracts changing hands. That's low compared with open interest of 21,000, however. The March 35 calls also traded roughly 1,270 calls, nearly equal to the open interest, showing fresh interest in the strike price as a realistic target for the stock.

The rumored price is $40 to $42 a share, slightly more specific than in recent months and years when the takeover chatter first had life pumped into it. But Eberle said activity in Tellabs has been fairly muted, which would be expected if it is a potential buyer.

Although Newbridge's stock was actually down 15/16 to 31 3/4, the February 40 call options were up 7/16 ($43.75) to 1 3/16 ($118.75) on fairly thin volume, and the March 40 call options were down 3/16 ($18.75) to 1 11/16 ($168.75).

Call options are often used as a cheaper way to speculate on takeovers than buying the stock outright because if the bet is wrong, an investor can lose only a limited amount of money. Buying a call option gives the investor the right to purchase stock at the strike price by a specified date. Call options increase in value as a stock rises -- or even if speculation that it will rise attracts more buyers into the options market.

Newbridge reports financial results Feb. 22, and according to one investor long the company for some time, "people are fixating on that date as a good time for it to make any announcement." Buying February calls is an interesting play because they expire Feb. 18, so traders are hoping to buy

and sell

the rumor without waiting for the fact.

"To me, this seems a lot different from previous rumor-mongering" about acquisitions, the investor added.

Meanwhile, the company told

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last week: "We're exploring all our options; we have been talking to a lot of parties and we're pleased with how things are going." Newbridge, however, declined to comment specifically on acquisitions.

But back to the index option pits, where much of the betting takes place on the direction of the market. The mood there, however, was oddly quiet.

"I'm shocked at how quiet it is. The rate hike has already been incorporated into the market. We had a lot of put-buyers right before last week's drop, and call-buyers on Tuesday, but otherwise not really much business. There has really been no distinct flow or orders one way or the other leading up to the Fed meeting," said Joe Sigetti, an

S&P 100

, or OEX, index options trader standing in the mini-stadium that is its trading pit in Chicago.

For a look of what prices are saying about the direction of the market, the in-the-money February 765 calls were flat at 16 ($1,600) with the OEX up 2.78 to 769.67.

Meantime, the February 765 puts were up 1/2 ($50) to 13 3/4 ($1,375). Since puts are often used as bets that a stock or index will fall, the rise in price for a put indicates investors are willing to pay up for that wager and hints at a slight bias to the downside for the S&P index.

All of this adds up to a big day for the speculative takeover plays and Internet companies over the banks and drugs. "Our bread and butter continues to be options in Internet stocks. People are just throwing money at them, since nobody knows who the winners will be. Eventually they'll get more selective, and that will take the

oomph

out of the market," said Rod Jamieson with

Everen Securities

in Chicago.

Staff reporter

Kevin Petrie contributed to this report.