Schaeffer's Midday Options Update Features Altria Group and Reliant Energy.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Altria Group (NYSE:MO) and Reliant Energy (NYSE:RRI). 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: A Reliable Trade?

A daily feature available on SchaeffersResearch.com is "Options Update." Every day, we'll give a brief market overview and focus on one stock that is the center of some heavy option trading. The focus of today's feature is Reliant Energy.

U.S. equities are digesting recent gains this expiration Friday, as the major averages acclimate themselves to their new respective altitudes. Volume isn't terribly impressive given that options are expiring; perhaps traders have stepped out early to check out the premiere of Snakes on a Plane. Crude futures briefly dipped below the $70-per-barrel threshold for the first time since June, as the situation in the Middle East improves. A quick rebound however, retook this level; the September contract has edged up 34 cents to $70.40 per barrel.

In economic news, the University of Michigan reported that U.S. consumer sentiment dropped in August to its lowest reading since October 2005, moving to 78.7 from 84.7 in July. The reading surprised economists, who were expecting a move to 83.6.

Most-Active Options Update

At 1:19 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 11,344.7) has added 0.09 percent, or 10 points. The S&P 500 Index (SPX - 1,298.27) is up 0.07 percent, and the Nasdaq Composite (COMP - 2,151.9) has given back nearly six points, dropping 0.26 percent. At 1:19 p.m. Eastern Time, 2,819,298 calls have changed hands compared to 2,252,250 puts, equaling a single-day put/call volume ratio of 0.79. The CBOE's equity put/call volume ratio stands at 0.75, while the ISE's ratio comes in at 0.85.

Yesterday's News

Yesterday (www.schaeffersresearch.com/commentary/observations.aspx?click=home& ID=17159)(Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) I noted how Altria Group (NYSE:MO) was seeing notable activity at its September 80 call (MO IP). By the closing bell, nearly 43,000 contracts had traded on this option. Roughly half of these translated as new positions, boosting open interest to 22,525 contracts and making this strike the site of heaviest open interest in the soon-to-be-front-month series. The implied-volatility reading on the option rose to 26.4 percent from 18.7 percent, meaning these were likely initiated by the purchaser.

The stock is getting even more attention again today, with more than 45,000 contracts trading on its in-the-money December 80 call. Coming into today's trading, this option was home to about 53,000 open contracts. MO has rallied more than three percent today to reach a new annual high. Tobacco companies are surging after a federal judge noted that she lacked the authority to levy significant financial penalties against tobacco firms despite finding cigarette makers guilty of violating civil racketeering laws.

Reliant Energy

According to Hoover's, Reliant Energy (NYSE:RRI) is a leading U.S. independent power producer and marketer. Today, the stock has seen more than 12,000 contracts trade on its at-the-money August 12.50 call (RRI HV). This is almost certainly a roll-out strategy, as the September 12.50 call (RRI IV) has seen similar volume on paltry open interest of 185 contracts. August options expire at the end of trading today, so these speculators are just extending the life of their call bets by another four weeks by reopening them in the September series. Both options saw similar block trades cross the tape around 10:30 a.m.

Is this roll-out a wise decision or should options players simply take their money and run at the present moment? RRI shares have benefited from the excitement over the energy sector, gaining more than 30 percent during the last five months and enjoying the support of their 10-day and 20-day moving averages. From a technical perspective, the stock's next challenge is the 16 level, above which the shares have not traded since mid-2001. This area was initially breached in early 2002 and has subsequently acted as resistance on a couple of occasions, including last fall.

Various sentiment indicators suggest that RRI might have the backdrop necessary to power a surge through this threshold, provided that energy is able to hold the attention of investors for just a little while longer. Options players are rather skeptical on RRI, judging by its Schaeffer's put/call open interest ratio (SOIR) of 1.11, which ranks among the top one-third of the past year's readings. With today's expiration of August options, however, this reading has the potential to change drastically come Monday morning.

Short interest is notable on RRI, representing more than eight percent of the equity's float. What's more, it would take these bearish speculators nearly 13 days to eradicate all of their shorted positions, which is more than enough to fuel a sizeable short-covering rally, assuming the stock is able to maintain its upward course.

Analysts are underwhelmed by the security, awarding one "buy" rating and six "holds." Should any of these neutral names have a bullish change of heart, the stock could benefit from a brokerage upgrade or two. All in all, RRI earns a Schaeffer's Equity Scorecard rating of 7.0, suggesting that its path of least resistance is skewed higher for the near term.

Click here to see a Daily chart of Reliant Energy since March 2006 with 10-day and 20-day moving averages and a Monthly chart of Reliant Energy since June 2001: http://www.schaeffersresearch.com/wire?ID=17168 .

The best way to take advantage of the timely Schaeffer commentaries is to sign up to receive their free e-newsletters -- Opening View, Market Recap and Monday Morning Outlook. Click here to have the Schaeffer's commentaries delivered to you free via email every day. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU13M&PAGE=1 .

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 .