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Unisys Call Options Take Flight

Takeover rumors occasionally crop up about the computer company, but so far nothing's doing.

Like a rash,

options action in

Unisys

(UIS) - Get Unisys Corporation Report

seems to erupt every once in a while, as speculation resumes to the effect that the computer services outfit will get bought.

Such was the case Monday. Unisys, a technology services and mainframe computer concern based in Blue Bell, Pa., has been the subject of takeover talk

several times in the past. So far, nothing has come of the chatter. Unisys said it doesn't comment on rumors. Its stock, off 4 cents Tuesday to $17.45, is up 19.4% for 2001.

The Skupp-Seidman options duo at

Miller Tabak

noted in a report to clients Tuesday that there was substantial

call buying in Unisys Monday. But the bullish action that marked yesterday's trading wasn't following through on Tuesday.

Options volume yesterday was notable in the March $17.50 calls, where 1,367 contracts traded. Open interest (the number of contracts in existence) had stood at 1,227. Only a handful of the March $17.50 calls have traded Tuesday. There was also call option volume spread out among other strike prices and various expiration dates.

Traders buying call options in effect express bullish sentiment in the underlying security, and call options appreciate when the price of the underlying security rallies. In the case of the call buying yesterday, traders are hoping for more upside in Unisys. If the stock rallies enough, they can either exercise the call option and buy the stock or sell the contracts back to the market and close out the position for a profit.

The bullish trading in Unisys probably isn't earnings related, considering the company posted earnings on Jan. 18. The company met Wall Street expectations for fourth-quarter results but said it was taking a "cautious" view for the first half.

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After rallying nicely for a couple sessions in a row, Unisys stock was easing off a touch Tuesday. Options action Tuesday morning was highlighted by

put-buying in the April $17.50 strike on the

Chicago Board Options Exchange

, where 1,100 contracts changed hands, a CBOE trader said. The puts fell 97 cents ($97) to $2.15 ($215). Open interest in the April $17.50 puts was 842 as of Monday's close, suggesting perhaps some investors were at least taking new positions.

While yesterday's call buying was bullish, those buying puts today were expressing a negative view on Unisys. Traders buy put options either to protect a long position in the underlying security or to speculate on a downdraft. A put gives the purchaser the right, but not the obligation to sell a security for a certain price by a specific time.

Conversely, a call gives the purchaser the right but not the obligation to buy a security for a certain price by a specific time.

Puts, Calls and Greenspan

Some options market sentiment indicators were subdued and little changed Tuesday as the

Federal Open Market Committee

kicked off a two-day get-together in Washington. The

FOMC is widely expected to cut its target for the

fed funds rate by a half-percentage point.

The CBOE equity put/call ratio stood at 0.52, from a close of 0.46 Monday, meaning that 52 put options traded for every 100 call options. Contrarian traders, with which the options market is heavily populated, closely watch the CBOE equity put/call ratio to help them gauge the sentiment of the investing public. A reading of 0.52 is for the most part neutral. High put/call ratio readings are bullish; while low levels are bearish, according to contrarian theory. For a more detailed look at sentiment and contrarian theory, check out last weekend's

Options Forum.

The overall options market equity put/call ratio, which includes data from all the nation's options exchanges, stood at 0.53.