Schaeffer's Midday Options Update Features Best Buy.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Best Buy (NYSE:BBY). 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.

Take advantage of the timely Schaeffer commentaries by signing up for 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=PRMOU12M&PAGE=1 .

Options Update: Best Hold or Best Sell?

U.S. stocks are staging an impressive rally heading into the final hours of the session, riding the wave of the latest economic news and comments from the Fed Chief. On Capitol Hill today, Fed chief Ben Bernanke told Congress that monetary policy must be flexible as the economy is in a state of transition. Bernanke's testimony included portions that could be construed as either hawkish or dovish. He said inflation risks remained and the central bank was concerned about rising prices. But he said the economy was likely to slow and this should ease inflation pressures. Furthermore, he added that the full impact of past rate hikes have yet to hit the economy. The formal testimony fits with the rough consensus of economists who had thought that Bernanke would try to preserve the Fed's flexibility to either continue to hike rates or pause in August, depending on the central bank's interpretation of the latest economic data.

Most-Active Options Update

At 1:48 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 10,984.0) has soared 1.71 percent. The S&P 500 Index (SPX - 1,257.30) has advanced 1.65 percent, and the Nasdaq Composite (COMP - 2,078.3) has rallied 1.72 percent. At 1:49 p.m. Eastern Time, 3,490,943 calls have changed hands compared to 2,657,707 puts, equaling a single-day put/call volume ratio of 0.76. The CBOE's equity put/call volume ratio stands at 0.75, while the ISE's ratio comes in at 0.69.

Best Buy

In yesterday's Daily Market Blog, I wrote an entry titled "Best Buy or Best Sell? You Be the Judge." Since Best Buy (NYSE:BBY) is seeing some rather heavy activity in the options pits today, I thought it would be appropriate to follow up on this blog entry with a bit of an expanded look at the stock.

To briefly recap what I stated yesterday, BBY broke through a long-term region of support/resistance at the 45 level. A downgrade by A.G. Edwards to "hold" from "buy" prompted the selling spree on the shares. I noted in the aforementioned blog entry that "A rejection (at this level) would certainly set off a sell signal in my book, while a rebound back above 45 could lend itself towards a holding pattern." Well, the security received a bit of counterbalance today when Prudential lifted its rating on the equity to "overweight" from "neutral weight." As a result, the stock has reclaimed the 45 level and the heavy put open interest calling this strike home in the front three months of options.

However, the concern from BBY's descending 10-day and 20-day moving averages is still very real. Since late April, this short-term duo has been quite a thorn in the stock's side, forcing the shares lower by more than 20 percent during this time frame.

However, there is a bit of additional support residing just below BBY at the moment. Hovering just above the 45 level is the stock's ascending 20-month moving average, which has helped to contain most of the stock's pullbacks since May 2003. With support comes a bit of worry however. BBY's dip below both of these key support levels yesterday could be a sign that support in the region is weakening, as repeated tests of such support levels can lessen their effectiveness.

Quick Sentiment Facts on BBY:

--Percent of analysts tracked by Zacks who rate the stock with a "buy" or better: 61%

--Number of analysts tracked by Zacks: 18

--Short interest as a percent of float: 3.17%

--Short-interest ratio: 3.22

--Schaeffer's put/call open interest ratio (SOIR): 1.29

--SOIR percent rank: 98%

--Overall Schaeffer's Equity Scorecard rating: 4.0

Overall sentiment toward BBY is rather complacent at the moment. Analysts are rather bullish toward the equity, and this could be its biggest downfall. According to Zacks 11 of the 18 covering analyst rate the shares a "buy" or better. With today's upgrade, things are getting quite crowded at the top, leaving ample room for downgrades that could further weaken the shares.

Elsewhere, the negativity from the options pits is to be expected on an underperforming stock. However, the extremity of this bearish sentiment gives me a bit of pause, especially with BBY sitting on heavy put open interest at the 45 level. Additionally, it seems that this region could be acquiring a bit more support in today's activity. More than 20,000 puts have crossed the tape at BBY's September 45 strike (BBYUI) so far today, with open interest at this back-month strike numbering 22,278 contracts. It will be interesting to see if an increase in put open interest at this strike will help bolster options-related support in the area.

Concluding with a look at the short-selling community, I find yet another dose of complacency. While a short-interest ratio of more than three days to cover with more than three percent of the stock's float sold short is nothing to shake a stick at, neither is it ample reason to rush out and bet bullishly on the shares from our contrarian perspective. With BBY in a downtrend lately, I don't see these naysayers rushing out to cover their positions any time soon.

With that said, the question still remains: Best Buy or Best Sell? With earnings for the company looming large in September, we may not see any real action for BBY until then. However, if the market continues to grow more risk adverse on the retailing sector, a solid breach of the 45 level for the shares could be just a session or two away. My advice, best sell or best hold for now.

Click here to see a Monthly Chart of BBY Since May 2003 with 20-month moving average and a Daily Chart of BBY Since May 2006 with 10-day and 20-day moving averages: http://www.schaeffersresearch.com/wire?ID=16447 .

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=PRMOU12M&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 .