You need to first create a new GUI test. If you don't, the Terminal Emulator option will not be displayed.

1. Launch UFT 11.5x or 12.00
2. Select Terminal Emulator from the addins window
3. Once UFT is loaded, select File>>New>>Test
4. Select GUI Test
5. Click Create button. Wait for new test to appear.
6. Click Tools>>Options>>GUI Test
7. On the left hand side, you should see Termial Emulator under Windows Applications
8. Click Terminal Emulator and configure as needed.