Schaeffer's Midday Options Update Features Freeport-McMoRan Copper & Gold and Phelps Dodge.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Freeport-McMoRan Copper & Gold (NYSE:FCX) and Phelps Dodge (NYSE:PD). 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: Heavy Metal Mania 

U.S. stocks are flat to slightly higher this afternoon, thanks to a bit of support from positive data and a bevy of mergers. Volume is understandably light, as many investors seem to have checked out for the holiday-shortened week. The New York Stock Exchange has seen 780 million shares cross the tape with advancers leading decliners 17 to 14. Turning to the Nasdaq, 910 million shares have traded with advancers equaling the number of falling stocks.

The lone economic report of the session featured the Conference Board announcing that its index of leading economic indicators edged 0.2 percent higher in October, slightly below economists' consensus estimate for a 0.3-percent rise. September's reading was revised higher to reflect a 0.4-percent gain. Last month, the coincident index edged 0.1 percent higher while the lagging index rose 0.2 percent. As a quick refresher, leading indicators tend to change before the economy responds. Coincident indicators shift at about the same time as the overall economy, while lagging indicators change after the economy does.

Most-Active Options Update

At 1:40 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,340.7) has slipped 0.01 percent, while the S&P 500 Index (SPX - 1,402.74) is 0.11 percent higher. The Nasdaq Composite (COMP - 2,452.9) has advanced 0.29 percent. At 1:42 p.m. Eastern Time, 3,141,574 calls have changed hands compared to 1,903,027 puts, equaling a single-day put/call volume ratio of 0.60. The CBOE's equity put/call volume ratio stands at 0.59, while the ISE's ratio weighs in at 0.67.

Today we are presented with the opportunity to take a look at both sides of a merger in the metals world. Metals giant Freeport-McMoRan Copper & Gold (NYSE:FCX) announced that it has agreed to purchase Phelps Dodge (NYSE:PD) in an offer valued at $126.46 per share. The agreed deal will create the world's largest copper miner.

Freeport McMoRan Copper & Gold

Let's first take a look at FCX. Technically, the stock is solid, thanks to support from its 10-week and 20-week moving averages. Yes, the shares have dropped more than 1.5 percent this afternoon thanks to the news of its shopping spree; however, this drop did little more than send the stock falling toward its 10-week and 20-week moving averages. The problem is that the stock is bouncing between this duo and the 60 level, which has provided resistance for the better part of the past year.

Further support is found in the form of FCX's 20-month moving average. This trendline has acted as a springboard since October 2002. In fact, the equity has closed below this trendline only three times since the end of 2002. Moreover, this trendline is advancing through the 50 region, with its sights squarely set on the 55 level, which is where the stock currently resides.

The speculative options crowd isn't thrilled by FCX's performance, although it has been impressive. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.33 is higher than 78 percent of those taken during the past 52 weeks. This pessimism is a nice sign, as FCX is a solid performer.

Further skepticism is evident in the form of analyst rankings. According to Zacks, six of the 11 analysts following FCX rate it a "hold." This configuration sets up the possibility for upgrades, which could help the stock move higher. Will it be enough to break through the 60 level? We shall see.

Give FCX a bit of time, and see if it can break through 60. If this situation comes to fruition, it could be the signal that FCX is in for a tidy rally. This is enforced by FCX's Schaeffer's Equity Scorecard reading of 7.0 out of a possible 10.

Phelps Dodge

The other end of today's transaction is PD. As is to be expected, the stock has rocketed more than 27.5 percent higher, and looks extremely strong. Now, let's see if today's momentum can hold.

Technically speaking, there is room for a significant pullback. We are talking about a stock that was trading slightly above the 95 level at the close of trading on Friday. Watch for the shares to pull back until they find the support of their 10-week and 20-week moving averages. The problem is that this duo is currently winding its way toward the 100 level. On the positive side, these trendlines have guided the stock higher since May 2004.

Furthermore, the stock enjoys the support of its 10-month average (and its 20-month counterpart when needed). Unfortunately, this trendline hasn't eclipsed the 90 level yet. The bottom line is that the drop from the stock's current perch to its 10-month moving average is far too much of a drop for this thrill-seeker to tolerate.

PD's sentiment lines up exactly as one would expect for a solid performer (which PD is). The company boasts a SOIR in the 16th percentile, and nine "buy" or better rankings out of 11 total. The problem with this is that there is plenty of room for downgrades or pessimistic sentiment to creep into the picture, which could push the stock lower.

PD's Schaeffer's Equity Scorecard ranking checks in at 4.0, which indicates that there is some room for downside. If you are looking to make a buck on PD, you may want to look at a 110 put, which is out of the money, but affords ample opportunity to take advantage of a price pullback.

Click here to see a Weekly Chart of FCX Since January 2005 With 10-Week and 20-Week Moving Averages, a Monthly Chart of FCX Since January 2002 With 20-Month Moving Average, a Weekly Chart of PD Since May 2004 With 10-Week and 20-Week Moving Averages, and a Monthly Chart of PD Since January 2002 With 10-Month and 20-Month Moving Averages: http://www.schaeffersresearch.com/wire?ID=17761

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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.