Schaeffer's Midday Options Update Features Cisco Systems, Yahoo!, May Department Stores, Federated Department Stores, and OmniVision Technologies.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Cisco Systems (NASDAQ:CSCO), Yahoo! (NASDAQ:YHOO), May Department Stores (NYSE:MAY), Federated Department Stores (NYSE:FD), and OmniVision Technologies (NASDAQ:OVTI). 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=PRMOU1M&PAGE=1 .

Options Update: OmniVision Technologies, A Stellar Stock?

The market is in the red once again, although the Dow Jones Industrial Average (DJIA) showed gains this morning of more than 100 points before slipping lower.

Crude oil briefly backed away from new highs following the release of oil supply levels. The Energy Department announced crude oil inventories rose by 2.8 million barrels to 320.8 million for the week of August 5. The American Petroleum Institute (API) posted a 6.0-million-barrel increase in crude. Crude oil for September ultimately settled up more than two percent at $64.80 a barrel after notching a new intraday peak of $64.96.

The government agency also announced that gasoline supplies dipped by 2.1 million barrels to total 203.1 million while distillate levels rose 2.6 million barrels to 129.9 million. The API reported that gasoline levels fell by 1.5 million barrels and distillate supplies slipped by 724,000 barrels.

Cisco Switches Outlook

Cisco Systems (NASDAQ:CSCO) gapped down this morning after announcing rather modest fourth-quarter results yesterday. CSCO earned 25 cents per share for the quarter, matching the analysts' estimate, and missing the "whisper number" of 27 cents per share. Profits rose 12 percent, but forecasts disappointed some members of the analyst community. Soon after the open, the stock was down almost five percent. I notice that Goldman Sachs advised clients to buy CSCO on any pullback and Banc of America Securities reiterated the stock at "buy." I think they're missing the point. Everyone already saw the stock as a "buy," that's the problem. We needed to see strong results, and we didn't get them.

Yahoo! Deals in China

Yahoo! (NASDAQ:YHOO) has decided to pay $1 billion for a 35-percent stake in the Chinese e-commerce operator alibaba.com. On top of this chunk of cash, YHOO will hand over its Chinese operation to the oriental outfit. A piece in The Asian Wall Street Journal tells us that YHOO "is taking the unusual step of ceding control of its business to a Chinese company." An unnamed source explained the terms of the deal to the Journal: Alibaba will maintain YHOO brands for its search engine and other operations, but it will gain access to YHOO's users and advertisers, a list that surely has enormous value.

This story will be one to watch, and it would take the brilliance of Scheherazade to figure out how it will eventually unfold. But one thing is startlingly clear. Dot coms are coming of age. They're celebrating tenth anniversaries. Big deals are likely to be the thing of the future. Google (GOOG) stock is still the focus of great attention, we saw the IPO of Baidu.com (BIDU) on Friday, and eBay (EBAY) is all set to battle for the Chinese online auction market, of which it currently has a 65-percent share, according to a research report by Shanghai iResearch published today in the online edition of The Wall Street Journal. An outfit called TaoBao holds 30 percent of that market. And guess who owns TaoBao? Good old Alibaba.

Wake Up, Wall Street...

The Federated-May story is back. Yesterday I reported that May Department Stores (NYSE:MAY) posted second-quarter results today that missed expectations by 49 percent. MAY, the number-two U.S. upscale department store operator (according to Hoovers) has agreed to be acquired by Cincinnati-based Federated Department Stores (NYSE:FD), owner of Macy's.

FD reported second-quarter net income that was up 90 percent, at $148 million, or 84 cents per share, in line with firm's target of 80 to 85 cents. Revenue increased by 1.2 percent to $3.62 billion as same-store sales climbed 1.1 percent.

Most-Active Options Update

At 2:20 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,628.9) has gained 0.12 percent. The S&P 500 Index (SPX - 1,232.93) is up 1.55 percent, and the Nasdaq Composite (COMP - 2,179.6) has given back 0.36 percent. At 2:20 p.m. Eastern time, 2,335,511 calls have changed hands compared to 1,563,816 puts, equaling a single-day put/call volume ratio of 0.66. The CBOE's equity put/call volume ratio weighed in at 0.78.

OmniVision Technologies

OmniVision Technologies (NASDAQ:OVTI), a company that I've been watching for a while, and that I think might be ready to make a major move to the upside.

According to Hoovers, OVTI is a 'fabless' semiconductor company, which means that it designs chips but it has no fabrication facilities. The firm has ideas that sound compelling - it places the entire functionality of a camera onto a single chip that captures and processes images.

The stock caught my eye this morning because of some heavy options activity. Volume of 5,151 of the September 15 puts (UCM UC) crossed the tape. The largest blocks comprised 1,460 and 1,000 contracts, which crossed a little before 10:40 a.m. Eastern time on the Chicago Board Options Exchange. Open interest this morning for that contract was 17,400. Peak front-month open interest lies at the August 17.50 put (UCM TW), which plays host to 10,630 contracts just now.

Last time I wrote about the stock, some interesting things were happening. There was an Island Reversal that drew my attention to the 15 level. The stock had a Schaeffer's Equity Scorecard rating of 6.0 out of 10.0 which indicated, by a small margin, that the upside was the path of least resistance. However, I saw reason for caution, and I said:

"A break above 15 would make OVTI's picture more appealing, and I would watch for that before recommending any kind of position on this stock. I think the 80-day moving average is worth watching, too. That's swooping down below 15, and the next few days will show how much attention the Street is paying attention."

It turns out the caution was justified. The stock was firmly rejected by the powerful 80-day moving average, and a long play at that point would not have been a good idea.

Now the situation is different. Short interest is high, at 6.61 days to cover, leaving ample fuel for short-covering if, for any reason, the stock starts to rise. On Wall Street, there is a degree of negativity, too. According to Zacks, of 10 analysts who express a preference, five rate OVTI at a cautious "hold" or worse, leaving room for upgrades and for further coverage.

The Schaeffer's put/call open interest ratio (SOIR) for OVTI is 1.18 today, indicating that puts outnumber calls in the front three months. This is more pessimistic than any SOIR reading taken in the past year. And the volume picture confirms the story very powerfully. The Put/Call Volume chart shows that puts have become increasingly dominant in recent days, hitting two-year highs.

It seems that we have support at the 12 level, with signs of a rebound, too. If good news were to come along, this stock is primed to take off. Speaking of which, a 6:30 a.m. press release today announced that OVTI is collaborating with NASA and the Jet Propulsion Laboratory to supply image sensors for the Picosat and Uninhabited Aerial Vehicle Systems Engineering (PAUSE) Mars prototype aerobot project. A few more stories like that, and people might start to take serious notice.

Click on the following link to see a Daily Chart of OVTI since January 2005 with 80-Day and 160-Day Moving Averages: http://www.schaeffersresearch.com/wire?ID=13860 .

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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 .