In an investigation of alleged illegal insider dealings in the takeover of Santa Fe International Corp. by the government of Kuwait, the Securities and Exchange Commission has asked for records from the Kuwait office of Merrill Lynch, Pierce, Fenner and Smith.

SEC is looking into charges that inside information allowed some investors to make millions of dollars in profits by purchasing options to buy Santa Fe International stock just before the Kuwait agreement was announced.

The government-owned Kuwait Petroleum Corp. offered Monday to buy all 49 million shares of Santa Fe International's stock for $51 each. Before trading in the shares was halted because of the upcoming announcement, the stock was selling for about $22.

Several options market makers on the Pacific Stock Exchange, where Santa Fe International options are traded, say they stand to lose so much money they will have to go out of business because of unusual activity in the options.

Stock options give investors the right to purchase a stock at a predetermined price and time. Last Thursday, options to buy 100 shares of Santa Fe International later this month for $30 a share were selling for only $6.25; the options were "virtually worthless" one trader said, because the stock's price would have had to jump more than $8 in less than two weeks to show a profit.

But on Thursday morning heavy orders came in for the options. Pacific Stock Exchange sources say many of the orders came from the Merrill Lynch office in Kuwait. Buyers of the $6.25 options were able to make a $2,100 profit on each one when the takeover was announced four days later, but options sellers were wiped out.

Trading in stock or options on the basis of inside information is illegal. SEC recently froze $2 million in profits made by a Swiss bank that allegedly used inside information to make money on options in another corporate takeover.

Merrill Lynch officials said they are cooperating with the SEC's "routine" request for records of options orders from the Middle Eastern office, but do not yet know how many orders came from there.