Schaeffer's Midday Options Update Features Citigroup, BP, American International Group, H&R Block, and Elan.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Citigroup (NYSE:C), BP (NYSE:BP), American International Group (NYSE:AIG), H&R Block (NYSE:HRB), and Elan (NYSE:ELN). 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: Trading With Elan

For a while it looked as if the bulls were driving the markets, but since May 18 the Dow Jones Industrial Average has closed into a narrow band between 10,450 and 10,550, with only one, very minor exception. Stocks are trending sideways, and for all the world it feels as if we are consolidating gains, waiting for news, and trying to figure out what's going to happen next.

Today's news included initial jobless claims for the week of June 4, which plunged by 21,000 to 330,000, matching the Street forecast.

Citigroup CEO 

Citigroup (NYSE:C) was our featured stock in this column yesterday. Today the firm named Damian M. Kozlowski as chief executive officer of Citigroup Private Banking, and as a new member of the bank's management committee. Kozlowski has been president of the U.S. region since November 2002, a position he will retain.

Mr. Browne Goes to Westminster

According to the Financial Times, BP (NYSE:BP) chief executive, John Browne, made some very interesting comments in a speech in London to the House of Lords, the upper house of the British parliament. The first part contains no surprises, but the second part might grab your attention. He believes that oil prices of more than $40 per barrel are highly likely until new supplies come online. He also noted that it is unlikely that oil prices will return to $20 per barrel. But, in the longer term, Browne suggested that prices above $35 will not be sustainable, which is good news indeed. He counseled caution, warning that concerns over high prices and instability in the oil market might provoke a response that made the situation worse, according to the report. The head of the world's largest integrated oil company recommended a focus on infrastructure and the application of technology to ensure energy security. In other words: "Don't panic!"

The Final Fax

The online edition of The Wall Street Journal reports that American International Group (NYSE:AIG) will bid farewell to Maurice R. "Hank" Greenberg, who resigned from the board yesterday evening. The report quoted the octogenarian executive's four-sentence facsimiled letter which stated: "My decision to resign now results from my inability to receive information regarding the company and its operations necessary to fulfill my fiduciary duties. I wish the employees of AIG every future success." Mr. Greenberg had already stepped down as chairman and chief executive of the company in March, but remained on AIG's board pending its annual meeting.

Can We Try That Again?

H&R Block (NYSE:HRB) CEO Mark Ernst just got a pay rise. His new annual base salary for the 2006 fiscal year is $860,000, up from $825,000 in fiscal 2005. HRB reported fourth-quarter results yesterday, with net income of $616.5 million, or $3.66 a share. Rather worryingly, given that we're talking about HRB here, the company intends to restate results for fiscal years 2004 and 2003 as well as parts of 2005.

Most-Active Options Update

At 1:30 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,493.2) was up 0.16 percent, while the S&P 500 Index (SPX - 1198.16) gained 0.29 percent. The tech-heavy Nasdaq Composite (COMP - 2,070.0) added 0.48 percent. At 1:30 p.m., 1,752,119 calls and 1,329,005 puts had changed hands, for a composite put/call ratio (across all six options exchanges) of 0.75. The CBOE put/call volume ratio for equity options stood at 0.85.

Elan

Elan (NYSE:ELN) is our featured stock today thanks to some heavy call activity at the June 7.5 strike. For a while, this Irish pharma soared on Wall Street. The stock climbed from 1.03 in October 2002 to hit 30.45 during November 2004, registering a 2,856-percent gain. It seemed as if nothing could go wrong for ELN. The company's multiple-sclerosis drug Tysabri had won accelerated approval from the Food and Drug Administration and it was expected to make patients better and make ELN richer.

But during clinical trials, two patients were diagnosed with progressive multifocal leukoencephalopathy, a brain infection that can frequently prove fatal. As a result, Tysabri was withdrawn in February. With ELN and partner Biogen Idec (BIIB) working to find a response, the stock inhabits the region of the chart below 10 dollars once again, where it has mounted a quiet recovery. In an interesting technical configuration, the price is exactly in line with both daily trendlines, which are set to make a bearish cross.

What can we say about the future for this stock? Remember, as contrarians we look for one of the following situations:

--Fundamental and technical strength amid pessimistic sentiment. This is a signal that upside movement could be on the way if any significant good news comes along.

--Fundamental and technical weakness amid optimistic sentiment. This is a signal that downside movement could be on the way if any significant bad news comes along.

Street sentiment is firmly pessimistic. According to Zacks, five brokers rate ELN at "hold," traditionally seen as a cautiously negative stance. I also see one "sell" and five "strong sell" ratings. This leaves plenty of room for upgrades should any good news come along, but not much scope for downgrades.

In the options pits, sentiment is also pessimistic. The Schaeffer's put/call open interest ratio (SOIR) for ELN is 0.53, in the 90th percentile. The figure of 0.53 tells us that puts outnumber calls in the front three months of options by about two-to-one. The percentile ranking tells us that this SOIR is more pessimistic than 90 percent of the readings taken over the past 52 weeks. In other words, options players are firm in their pessimistic opinions. Furthermore, the SOIR has been increasing very noticeably since April, so we see this bearish sentiment mounting.

The short-interest ratio, which measures how long it would take short sellers to cover their positions at the current average trading volume, is 2.26, which is not a particularly high reading. Nevertheless, almost ten percent of the float is sold short, and the short interest surged 29.96 percent in the past month, speaking eloquently of pessimism.

Yet, the stock has clearly recovered a little. Anyone who bought at the March 31 low of 3.00 is sitting on a hefty gain of 142 percent, with the stock at 7.25 at last check. Inexpensive stocks like ELN, which are priced at $25.00 or less, can provide great profit opportunities for investors with limited capital to employ. This is exactly the type of opportunity we look for in Schaeffer's Low-Dollar Stock Alert.

And today brings good news about Tysabri for ELN. The developers suggest it is possible to make an early diagnosis of the deadly infection linked to the drug, in time to allow patients to recover. These comments from doctors at BIIB were made in the New England Journal of Medicine, and offer one possible strategy to return Tysabri the market.

ELN clearly has a long way to go, and patient safety is paramount. But if the firm can find a realistic way to return the drug to the market, that will be welcome news indeed for shareholders. Scroll up for a moment, and take another look at those bullet points.

Click on the following link to see the Schaeffer's Equity Scorecard and Weekly Chart of ELN since October 2002: http://www.schaeffersresearch.com/wire?ID=13363 .

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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 .