Schaeffer's Midday Options Update Features American Italian Pasta, Bear Stearns, Goldman Sachs Group, Lehman Brother Holdings, and TiVo.

CINCINNATI -- Today's Schaeffer's Midday Options Update features American Italian Pasta (NYSE:PLB), Bear Stearns (NYSE:BSC), Goldman Sachs Group (NYSE:GS), Lehman Brother Holdings (NYSE:LEH), and TiVo (NASDAQ:TIVO). 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. For additional information about this report or to have it delivered to you free via email every day click on the following link. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU12M&PAGE=1 .

Options Update: Trading Options on TiVo

After peaking just after lunchtime, the Dow Jones Industrial Average (DJIA) has given back some of today's gains but, as of now, remains comfortably in positive territory, up 45 points. The S&P 500 Index (SPX) has behaved in a similar fashion, hitting a peak of 1,310.45 around 12:45 before falling back slightly. Meanwhile, the Nasdaq Composite (COMP) petered out in early trading and is now lower by a fraction.

In economic news, the Commerce Department said this morning that housing starts dropped 7.9 percent in February to a seasonally adjusted annual rate of 2.12 million starts. This reading was higher than analysts' expectations for a rate of 2.04 million units, down from January's record-setting figure of 2.28 million. In related news, building permits dropped 3.2 percent, while permits for single-family homes were down three percent. During the month, housing starts were down in all U.S. regions except the West, with the Northeast posting its largest decline since May 2001.

That's Amore?

American Italian Pasta (NYSE:PLB) had a piece of good news today, something of a rarity for this troubled stock. The Dow Jones Newswires reports that PLB has entered a new $295 million, five-year senior credit facility, which means that the company is no longer in default of its prior credit agreement and is in compliance with all covenant requirements. At last check, PLB was up more than 54 percent at $6.45. Lest you get tempted, remember that the stock hit a high of $52.56 in June 2002. Marketwatch reported that the company reduced its debt to $267 million from $281 million through the financing.

Bullish about Bear Stearns

Bear Stearns (NYSE:BSC) became the third investment bank to report impressive results this week, following the lead set by Goldman Sachs Group (NYSE:GS) and Lehman Brother Holdings (NYSE:LEH). BSC reported that first-quarter net income showed a 36-percent jump to $514 million, or $3.54 per share, up from $379 million, or $2.64 per share, a year ago. Revenue rose by 19 percent to a record-setting high of $2.2 billion.

Most-Active Options Update

At 2:25 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 11,259.7) is up 0.45 percent. The S&P 500 Index (SPX - 1,306.61) has added 0.35 percent, and the Nasdaq Composite (COMP - 2,311.3) has shed 0.02 percent. At 2:26 p.m. Eastern time, 5,992,162 calls have changed hands compared to 2,168,413 puts, equaling a single-day put/call volume ratio of 0.36. The CBOE's equity put/call volume ratio weighed in at 0.20. These are unusually high volumes and low put/call ratios.

TiVo

Before I sat down to write this piece, I had to check with our Quantitative Analysis team that their numbers were right. Every day they compile a list of the 10 most-active call contracts and the 10 most-active puts. From that list, I select a stock to write about. On today's list of the most-active calls, nine of the slots were filled with options on the Spyders, the S&P Depositary Receipt (SPY). I've never seen anything like it, and many of those options are deep in the money, too. On the put side, the iShares Russell 2000 Index Fund (RUT) was trading like it's going out of fashion, so we have calls on larger caps and puts on small-cap stocks.

Featured stock today is TiVo (NASDAQ:TIVO). By the time we grabbed our figures, 10,344 of the May 5.00 put had changed hands. Open interest before trading began was 62,138 contracts, which strikes me as rather hefty, and this prompts me to wonder about the options configuration.

March options are due to expire on Saturday, and they trade for the last time tomorrow. In the April and May series we see some potential options-related resistance at the 7.5 level, but in the May series there is massive potential options-related support at the five level.

TIVO's daily chart shows an uptrend that began in October. There is room for further gains before the stock runs into any turbulence at the 7.5 level, and I see that it has pulled north of its 10-day and 20-day trendline support.

Let's take a look at the sentiment. Regular readers of this space know that we employ an Expectational Analysis(R) investment approach that seeks out bullish selections that have sound fundamental and technical backdrops but still have pessimism present in their sentiment background. For bearish selections, we target stocks with mediocre technical indicators set against a backdrop of optimism.

We track a diverse range of sentiment measures, but three of the popular ones are:

-- Analyst ratings, to gauge Street sentiment

-- Equities sentiment, in the form of short selling 

-- Options sentiment, in the form of put/call ratios and trends, and peak open interest

From Zacks I see that analysts award:

-- 3 "strong buys"

-- 1 "buy"

-- 7 "holds"

-- 0 "sells"

-- 5 "strong sells"

With 12 out of 16 ratings at a cautious "hold" or much worse, there is plenty of room for upgrades but not too much danger of downgrades.

Short interest for the stock fell 16 percent last month, but the short-interest ratio (the number of days it would take to buy back all the shorted shares) is still 8.0, and more than 16 percent of the float is sold short. We monitor short interest because sometimes good news comes along and pushes a stock's price up sharply. This might shake out some of the short sellers, who suddenly see that it will cost more money to buy their stocks back than they tucked under the mattress when they originally sold the positions. If these turncoat short sellers suddenly transform into buyers, they can push the stock price higher and perhaps provoke further short covering. Typically, we like to see a short-interest ratio of at least five, and a figure higher than 10 is very appealing.

The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.95 indicates that calls and puts are more or less equally popular in the March, April, and May series of options. This SOIR reading is higher than 95 percent of readings taken during the past year, so it is toward the pessimistic end of the spectrum, another good sign from our contrarian perspective since it suggests that sideline money could be plentiful.

The stock earns a Schaeffer's Equity Scorecard reading of 7.5 out of 10, indicating that the path of least resistance leads to the upside.

Click the following link to see a Daily Chart of TIVO Since October 2005 with 10-Day and 20-Day Moving Averages: http://www.schaeffersresearch.com/wire?ID=15562 .

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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 .