What’s Up with Sun Microsystems Stock Options?

Sun Microsystems (JAVA) stock options volume went into orbit yesterday and its stock price was up about 4%.

Sun Microsystems once-upon-a-time proclaimed itself as the “dot in dot-com,” but fell from grace with the dot-com implosion.

Sun is in the business of providing software, servers, storage, networking and desktop systems. The company is known for developing its line of high-powered workstations and for developing the Java programming language.

In recent months, Oracle (ORCL) has been planning to merge with Sun, but ran into a snag with the European Commission rejecting the idea. The conflict seems to stem from Oracle’s proprietary database products and Sun’s ownership of open source database MySQL, which it recently purchased.

To get the deal pass the European Union, Oracle/Sun may have to divest MySQL.

Sun’s stock price has basically been falling ever since the aftermath of the dot-com bubble. It recently spiked up with the potential merger with Oracle.

Oracle may just be the medicine that Sun needs, as it won’t take Oracle’s co-founder and CEO of Oracle long to whip Sun into shape.

Apparently somebody out there thinks something is imminent with Sun with all of the interest in Sun’s stock options yesterday. Perhaps the best play for Sun is a long strangles strategy, the purchase of an out-of-the-money call option and an out-of-the-money put option. The strategy wins if Sun’s stock price makes a move upward or downward and is a loser if the stock price doesn’t move significantly. This is a very speculative, Vegas type play, so it’s probably wise to only make a small investment in this strategy. Alternatively, an investor might consider just purchasing the put option and forgoing the call option, as the put option should pay off if the Sun/Oracle deal falls through. The call option would pay off if another company were to offer to pay more for Sun than Oracle is willing to pay.

A large majority of the stock option volume for Sun’s stock options yesterday was in the December 9 call option and the December 7 put option, both of which are selling for around $0.12. The ticker symbol for the December 9 call option is SUQLA and the ticker symbol for the December 7 put option is SUQXH.

The profit/loss graph for the long strangles strategy for Sun for 10 contracts is shown below:

Something is up with Sun Microsystems, and based on its stock option activity, it should play out in the very near future.

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[tags] software, servers, storage, networking, desktop systems, Java programming language, MySQL, European Union, JAVA, Sun Microsystems Inc., ORCL, Oracle Corp. [/tags]