Schaeffer's Midday Options Update Features Citigroup, Aztar, 3M Company, Blockbuster, and Computer Sciences.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Citigroup (NYSE:C), Aztar (NYSE:AZR), 3M Company (NYSE:MMM), Blockbuster (NYSE:BBI), and Computer Sciences (NYSE:CSC). 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: Computer Sciences Jumps on Acquisition Expectations

The market is relying on merger-and-acquisition news today, as there are no major government economic reports today. Challenger, Gray & Christmas did release a survey showing that U.S. layoffs dropped 26 percent in March, falling to an 11-month low. March layoffs came in at 64,975, February's layoffs came in at 87,437, and March 2005's layoffs came in at 86,396 (25-percent higher than this year's number of layoffs). First-quarter layoffs in 2006 saw an 11-percent decline from the fourth quarter, dropping to 255,878.

Chicago Fed President, Michael Moskow, shed little light on monetary policy in a speech to a German crowd today. However, an upcoming address by Dallas Fed President Richard Fisher may give a bit of insight into the Fed's thinking. One should note that Fisher is not a voting member of the Federal Open Market Committee.

Re-Grouping

Yesterday, Citigroup (NYSE:C) Chief Executive Chuck Prince received a letter from William Rutledge of the New York Federal Reserve Bank concerning the one-year ban on mergers for C. Reportedly, the letter stated that the understanding that C "will refrain from significant expansion is no longer in operation." According to the letter, regulators "will carefully review any expansion proposal undertaken by Citigroup in accordance with all applicable statutory requirements and cannot, at this time, express any view on whether these requirements would be met regarding any specific proposal." An internal memo from Prince revealed that he is happy with the decision. Last March, the New York Fed imposed the ban as C was acquiring First American Bank. With the limits now lifted, watch C to start looking for acquisitions, which could encourage mergers in the banking sector.

Wishing Upon Aztar

Late yesterday, Aztar Corp. (NYSE:AZR) announced that it plans to enter into separate discussions with Colony Capital Acquisitions and Ameristar Casinos (ASCA) about their unsolicited acquisition proposals. ASCA offered $42 per share for AZR yesterday for a deal that would create the country's fifth-largest publicly traded gambling-hall operator. On March 13, AZR agreed to be acquired by Pinnacle Entertainment (PNK) for $38 per share, Colony Capital offered $41 per share on March 30. AZR stated that ASCA and Colony Capital's offers are likely to result in proposals better than PNK's, but it will not make a recommendation at this time regarding the bids.

MMM MMM Good

3M Company (NYSE:MMM) announced that it is seeking strategic alternatives for its branded pharmaceutical business. The drug-producing branch of MMM, which employs 1,500, manufactures products such as Aldara, Difflam, Duromine, and Tambocor. Reportedly, MMM has retained Goldman Sachs to help in choosing a course of action.

Blockbusted

Blockbuster (NYSE:BBI) has lost more than four percent this morning, thanks to a report in The Wall Street Journal (citing the ever-popular, "people familiar with the matter") that Carl Icahn will not seek control of the company. Icahn is BBI's largest shareholder, with a 16-percent stake in the company. The Journal noted that this move makes a sale of the entertainment company in the near-term future unlikely.

Most-Active Options Update

At 1:18 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 11,198.3) is up 0.48 percent. The S&P 500 Index (SPX - 1,303.12) has added 0.41 percent, and the Nasdaq Composite (COMP - 2,344.7) has tacked on 0.34 percent. At 1:17 p.m. Eastern time, 1,895,364 calls have changed hands compared to 1,494,993 puts, equaling a single-day put/call volume ratio of 0.78. The CBOE's equity put/call volume ratio weighed in at 0.87.

Computer Sciences

Computer Sciences (NYSE:CSC) announced today that potential suitors have approached it, and it is considering a sale of the company. The Wall Street Journal estimated that the California-based company could garner as much as $10.6 billion. The firm announced that it has received "expressions of interest" and "has decided to explore strategic alternatives to enhance shareholder value, including a potential sale of the company." Standard & Poor's Ratings Service took note of this news, and placed the company on credit watch with negative implications.

Options players subsequently pummeled CSC's May 57.50 call (CSCEY). Digging into the data a bit, and consulting with Jocelynn Drake, it appears that most of these contracts could have opened to sell. It seems that this group believes CSC could pull back below 57.50 and, given that this is a May contract, there is ample time to allow this to happen.

Technically, today's news sent the shares through the 58 level, which is significant. Notice that this level spurned the shares in December 2004 and again in March. While the shares have pulled back a tad, watch for this former resistance to step in and act as support if needed. Furthermore, note that CSC's 10-week moving average is rapidly ascending into the region along with its 20-week counterpart. The last time the equity finished a week below this tandem support was in October 2005.

Spanning our scope to the longer-term performance, notice that CSC is riding the support of its 10-month and 20-month moving averages higher. While the 60 level stands in the way as the next hurdle for the shares, the presence of a bullish crossover suggests that the shares may continue higher.

Let's look at the sentiment backdrop of CSC:

--Percent of analysts tracked by Zacks who rate the stock with a "hold" or worse: 88%

--Number of analysts tracked by Zacks: 16

--Short interest as a percent of float: 1.64

--Short-interest ratio: 2.49

--Schaeffer's put/call open interest ratio (SOIR): 0.63

--SOIR percent rank: 56%

--Overall Schaeffer's Equity Scorecard rating: 7.0

While pessimism isn't overwhelming when it comes to CSC, one aspect stands out: analyst ratings. According to Zacks, 14 of the 16 analysts covering CSC rate it a "hold" or worse. Should this dour bunch begin to issue upgrades, the stock could benefit from continued upside pressure.

I would love to see a tad more pessimism in the form of shorted shares (which could provide short-covering support) or from the options pits, but this isn't the case. If pressed to make an option play on CSC, I would look at the June 60 call (CSCFL); this is very close to being in the money, and it sports an ask price of $2.40. Pessimism doesn't run at extreme levels here, but the chance of upgrades pushing the shares higher does exist.

Monthly chart of CSC Since January 2000 With 10-Month and 20-Month Moving Averages: http://www.schaeffersresearch.com/wire?ID=157000 .

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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 .