Schaeffer's Midday Options Update Features AT&T.

CINCINNATI -- Today's Schaeffer's Midday Options Update features AT&T (NYSE:T). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Options Update: Where It's AT&T

This morning, the Labor Department announced that U.S. nonfarm payrolls rose by an estimated 51,000 in September. The increase was far lower than the 123,000 that economists expected, according to a survey by MarketWatch. In addition, payrolls in July and August were revised higher by a total of 62,000 jobs. The weakness in last month's payroll growth was concentrated in the manufacturing and retail sectors, which was offset by gains in health care and finance.

In the ever-continuing saga of crude futures and the Organization of the Petroleum Exporting Countries (OPEC), crude has slipped below 60. After yesterday's high of nearly $61 thanks to news that OPEC informally agreed to cut crude production by one million barrels per day and may hold an emergency meeting later this month. However, early this morning, some speculation came out that President Edmund Daukoru (who is also Nigeria's oil minister) stated that the group is still in consultations on the need for and emergency meeting, but no decision has been made.

Most-Active Options Update

At 1:34 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 11,821.3) has retreated 0.39 percent and the S&P 500 Index (SPX - 1,346.67) has lost 0.48 percent. Meanwhile, the Nasdaq Composite (COMP - 2,296.5) is 0.42 percent lower. At 1:35 p.m. Eastern Time, 2,193,838 calls have changed hands compared to 1,811,147 puts, equaling a single-day put/call volume ratio of 0.68. The CBOE's equity put/call volume ratio stands at 0.74, while the ISE's ratio comes in at 0.92.

AT&T

Time for a little telecom...all this week, my colleague Joseph Hargett has been looking at the telecom sector finding bullish and bearish plays. Here are links to his observations (make sure to come back after reading his thoughts):

* Not So Ill Communications

* Turn of the Centurytel

* A Razr's Edge Trading Strategy 

* Sprinting for a Hedge in Telecom

Today, I am presented with the opportunity to add my two-cent's worth on a major player in the telecom sector, AT&T (NYSE:T). Options players stocked up on the company's November 32.50 call (TKZ), placing this contract on our notably active call options list. Looking at the open interest for T, 32.50 is the site of peak call open interest in the October series; however, this potential resistance will be removed when options expire on October 20. This fact leaves ample time for the stock to advance through 32.50. In addition, 32.50 is the site of heavy peak put open interest in October and heavy put open interest in November. Should the stock advance through 32.50 before October 20, it may act as support, which could be carried over into November.

For the moment, let's focus past October and into November. We will return to the short term in a moment. What could help move T through this overhead resistance? Well, one vehicle for this move could come in the form of a short-covering rally. It would take nearly 12 days for short sellers to buy back their bearish bets against T, which should be enough to help the stock move through overhead resistance. But what could give these bears reason to buy back their bets against the company? Well, October 23 is the scheduled date for T's earnings report. This is the first Monday after October options expiration, and what does that mean gang? Well, peak call open interest at the 32.50 level will be gone and open the path to break through 32.50. That is one reason that I would look at intermediate- to long-term plays on T. Another is that the aforementioned TKZ contract sports an ask price of 80 cents.

Okay, I've given one reason that I think T could be an excellent bullish play, let's take a look at some technical evidence for a move higher. The shares currently enjoy the support of their 10-week moving average. This trendline has guided the shares higher for the better part of 2006. In fact, the shares have pulled back slightly, which could be a reason that T is at an attractive entry point. This moving average should help the stock test the waters above 32.50 again, which it may find to its liking once and for all.

A longer-term look at T will show that it is entering an area that it has not visited since 2002. I have drawn a line in for the 32.50 level to show that it has acted as resistance in the past. In fact, once this level is broken, watch for it to switch roles and act as support, which should be bolstered by the heavy put open interest. Yes, there is a chance that 32.50 will act as resistance, I never said T was a fool-proof bullish play.

Can T return to the glory it enjoyed when it was Ma Bell? I am not sure, but it certainly appears that the stock may be on the verge of moving higher.

So, how does the rest of the sentiment look for T? Well, the firm's Schaeffer's put/call open interest (SOIR) ratio stands at 0.99. This ratio indicates that the number of puts and calls is nearly equal, indicative of skepticism. What's more, T's SOIR has increased quite a bit recently, and is at its highest point of the past month. Pessimism is definitely growing toward the queen of communications.

The one aspect of T's sentiment backdrop that worries me is its analyst rankings. According to Zacks, the phone firm earns 10 "strong buys," two "buys," four "holds," and three "strong sells." This configuration doesn't afford much chance for upgrades to push T higher. Nonetheless, if the stock's performance continues on its current path, there may not be many reasons to issue downgrades.

T's strong performance and the bearish feelings from short sellers and options players earns it a Schaeffer's Equity Scorecard rating of 8.0 out of a possible 10. This rating suggests that there is ample sideline money to push T higher as investors jump into the fray.

Click here to see a Weekly Chart of and Monthly Chart of T: http://www.schaeffersresearch.com/wire?ID=17494

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About Schaeffer's Investment Research (www.SchaeffersResearch.com)

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com, is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method.