Schaeffer's Midday Options Update Features Elan.

CINCINNATI -- Today's Schaeffer's Midday Options Update features 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.

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Options Update: Elan Wrestles With 15

This morning, the core personal consumption expenditure price index for September was released by the Commerce Department. The report is seen as the Federal Reserve's favorite measure of underlying inflation. That said, the core (excluding food and energy prices) indicator reflected a 0.2-percent rise during September, bringing the year-over-year increase down to 2.4 percent on the heels of a 10-year high 2.5 percent in August. The Fed has noted that inflation rates above two percent make it "uncomfortable." Speaking of the Fed, Jeffrey Lacker, president of the Federal Reserve Bank of Richmond noted that inflation remained a concern. However, analysts note that Lacker's concerns are well known.

The market's slightly positive tilt has come at the expense of crude, which has dropped nearly $2 on the day. Black gold eased as concerns about a possible attack on oil facilities waned, and concerns about a softening world economy and lower demand resurfaced. December-dated crude was last $2.15 lower at $58.60 per barrel.

Most-Active Options Update

At 1:25 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,097.2) has added 0.06 percent, while the S&P 500 Index (SPX - 1,379.16) is 0.13 percent higher. The Nasdaq Composite (COMP - 2,360.8) has added 0.43 percent. At 1:27 p.m. Eastern Time, 2,267,509 calls have changed hands compared to 1,812,378 puts, equaling a single-day put/call volume ratio of 0.79. The CBOE's equity put/call volume ratio stands at 0.73, while the ISE's ratio weighs in at 0.83.

Elan

Well, it has been nearly five months since we last discussed pharmaceutical firm Elan (NYSE:ELN), but heavy activity on its November 15 call (ELN KC) give us an opportunity to revisit the troubled company. On October 25, ELN announced that its third-quarter loss widened compared to a year ago. However, the company did note that it is encouraged by the initial results from the re-launch of its Tysabri. A quick refresher here; Tysabri is the embattled multiple-sclerosis treatment that was pulled off the shelves after a patient died and another developed a serious, often fatal, brain and spinal cord condition. The Food and Drug Administration did grant limited approval for the drug a year after it was pulled from the market. The company did note that roughly 75 percent of patients now taking Tysabri have switched from other drug treatments.

Today's activity indicates that options players are willing to jump back on ELN's bandwagon, but the activity does have a negative side effect. The 15 level is now the site of peak call open interest in the front three months of options, which could add a bit of starch to the level's potential resistance. That said, the 15 level is also the site of peak put open interest during the same time frame. An advance through this level could allow it to resume its role as support.

Technically, the 15 level is important, and that could be a bit of an understatement. The daily chart below shows that this level has alternated roles as support and resistance for the better part of the past year. Moreover, the equity has lost the support of its 10-day and 20-day moving averages, and it appears that these trendlines have rolled over and are taking a downward path.

Is there any support for ELN? It certainly appears that the 14 level could act as a springboard. Since February, there have been only a handful of days that ELN has closed below 14. Let's see if this trend can continue. The weekly chart below may scare a few off, but read on. Yes, there is an astronomic drop, but the shares have worked their way higher since that April 2005 bottom. Also, notice that the 14 level has provided support in the past, and could continue this role. Of course, I am a bit skittish thanks to overhead resistance from ELN's 10-week and 20-week moving averages.

Looking a bit longer term, there is the potential for support from ELN's 10-month moving average, which rests slightly overhead. Any rally could send the stock through this resistance, which could allow it to resume its prior role as support.

Technically, maybe I seem a bit wishy-washy, but this stock could honestly go either direction. Let's look for some clear-cut evidence for a move in the sentiment rundown for ELN:

* Percent of analysts tracked by Zacks who rate the stock with a "hold" or worse: 100%

* Number of analysts tracked by Zacks: 8

* Short interest as a percent of float: 9.71%

* Short-interest ratio: 0.58

* SOIR percent rank: 13%

* Schaeffer's Equity Scorecard: 5.0

I am impressed by the percentage of float sold short, and how long it would take to buy back the shorted ELN shares at the equity's average daily volume. This combination could provide the means for a substantial short-covering rally on any good news.

In addition, any good news could give the bearish analyst bunch reason to issue upgrades. Of course, earnings are not scheduled until February, so you may have to rely on drug approvals. Note that this type of announcement could also be negatively received and push the stock lower. Especially since the options crowd is bullish toward ELN. Any negative news could cause selling pressure to creep into the equation.

ELN's Schaeffer's Equity Scorecard of 5.0 out of a possible 10 tells me that this stock could be a perfect candidate for a straddle position. If it were my money, I would look at the 15 level, as it has been key throughout the course of the past year. Look to next April, a call at the 15 strike carries an ask price of 2.20 while a put carries an ask of 2.20 as well. As always, thanks for reading, good luck, and happy trading.

Click here to see a Daily Chart of ELN Since February 2006 With 10-Day and 20-Day Moving Averages and Weekly Chart of ELN Since January 2005 With 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=17648

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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 .