Schaeffer's Midday Options Update Features General Electric, McDonald's, Hewlett-Packard, Rambus, and Xerox.

CINCINNATI -- Today's Schaeffer's Midday Options Update features General Electric (NYSE:GE), McDonald's (NYSE:MCD), Hewlett-Packard (NYSE:HPQ), Rambus (NASDAQ:RMBS), and Xerox (NYSE:XRX). 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: Call Copies Flood Xerox

The activity on the Street has turned from lethargic complacency to a mild selling mood, as all three of the major market indices continue to slip further beneath breakeven on the day. It seems that traders are a bit tired after this week's dead run higher, and are taking it easy today. Even a series of positive economic reports couldn't spur the market into a rally.

Generally Unimpressed

General Electric (NYSE:GE) added to the session's lethargy when it reported second-quarter earnings of 44 cents per share on revenue of $41.6 billion, matching the consensus estimate. While the Dow component did elevate the low end of its 2005 earnings forecast to a range of $1.80 to $1.83 per share for the year (surrounding the Street's view for $1.82 per share), investors were unimpressed. At last check, GE had slipped more than one percent to 35.21.

Send Them Hewlett Packing

Fellow Dow component Hewlett-Packard (NYSE:HPQ) attempted to erase GE's weakness when reports surfaced that the firm is set to announce a major restructuring plan as early as next week. According to News.com, HPQ could lay off as many as 15,000 employees, but the article also quoted research firm Moors & Cabot, suggesting that job losses could exceed 20,000 positions. Elsewhere, The Wall Street Journal reported that the layoffs would be announced next Tuesday, while News.com has the announcement slated for Monday. Both reports cited a person familiar with the situation as their source.

Super Size Me!

Apparently it was all Dow, all day on the Street, as McDonald's (NYSE:MCD) jumped more than four percent after the company set second-quarter earnings expectations at 42 cents per share. However, the consensus estimate for the firm still stands at a profit of 48 cents per share. MCD noted that global system-wide sales for its eponymous restaurants rose 6.2 percent during June, 6.3 percent in the second quarter, and 7.1 percent year-to-date.

Ramming Speed

Rounding out our news coverage, our focus turns from the blue-chip sector to semiconductor concern Rambus (NASDAQ:RMBS). The equity has plunged nearly seven percent today after the company reported second-quarter earnings of $5.4 million, or five cents per share. The results fell 36 percent from last year's $8.3 million, or eight cents per share. Revenue rose to $40 million, up from $35 million a year ago. RMBS stated that forecasting the second half of the year will be a challenge due to the number of patent-license agreements and renewals that it's currently negotiating.

Most-Active Options Update

At 1:43 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,613.8) has slipped 0.14 percent. The S&P 500 Index (SPX - 1,225.09) is lower by 0.11 percent, and the Nasdaq Composite (COMP - 2,149.4) has given back 0.16 percent. At 1:42 p.m. Eastern time, 2,255,562 calls have changed hands compared to 1,671,916 puts, equaling a single-day put/call volume ratio of 0.74. The CBOE's equity put/call volume ratio weighed in at 0.75.

Xerox

The duke of the ditto machine, Xerox (NYSE:XRX), is beginning to attract some attention from the investing public heading into its earnings announcement on July 25. Option activity is hot and heavy today, with a whopping 11,047 calls crossing the tape at the stock's August 14 (XRX HP) strike on open interest of a mere 2,233 contracts. Much of the activity occurred between 10:30 a.m. Eastern time and 12:01 a.m., with several large blocks ranging from 1,125 contracts to 3,000 contracts crossing the tape at the ask, suggesting that a hefty degree of call buying is invading the XRX options picture. Since this is already the site of peak call open interest for the front-three months of options, today's activity could make this level even more key for XRX, as much of today's volume should translate into new open positions.

Returning to the earnings scene briefly, we find that XRX is scheduled to release its second-quarter earnings figures on Monday, July 25, before the market open. Currently, the consensus is expecting a profit of 23 cents per share from the copy company, and they very well might get it. During the past five periods, XRX has bested the Street's view by an average of 9.5 percent, never failing to best an estimate.

Now, with a fundamental backdrop like this, you would expect XRX to have a similar technical outlook. Well, as you can see from the weekly chart below, this just isn't the case. In fact, the stock has been in decline mode since topping out in the final week of 2004. Since that fateful week, XRX has been driven lower by overhead resistance at its 10-week and 20-week moving averages to the tune of 19.75 percent.

Furthermore, after a solid run higher along its 10-month and 20-month trendlines, XRX has closed the past three months below these former support levels. This does not bode well for the security, as support often turns into resistance once breached, and the stock's 20-month trendline is resting just above the 14 level, and appears to be making a break for a bearish cross of its 10-month counterpart. Keep that 14 level in the back of your mind as well, as this area has troubled XRX since December 2003. With call open interest building at this level, XRX has its work cut out for it if it wants to resume its rally higher.

As noted above, the XRX's options picture could become a real sticking point for the equity. Checking in on the stock's Schaeffer's put/call open interest ratio (SOIR), we find that while it has risen nicely from its June 16 annual low 0.35 to its current perch at 0.45, today's reading falls in the far-from-bearish 15 percentile. Given the stock's technical performance, this is not encouraging from a contrarian standpoint.

Checking in on the short sellers, we find that the group has abandoned XRX in droves recently. Since November 2004, the number of XRX shorted shares has plummeted from 55.9 million to 17 million - a 59-percent decline in less than a year. Furthermore, 18 percent of this exodus arrived during June, resulting in a short-interest ratio of 4.37 days to cover. While this reading still offers the promise of potential short-covering, all you need to do is look at the shares technical performance from November to current to see the effect of the last round of buy-backs from the short-selling community - again, not very promising for XRX.

The song remains the same on Wall Street, as Zacks reports that XRX receives three "buys," four "holds," and no "sell" ratings. The absence of "sells" raises a warning flag for me, especially given that there is plenty of room for downgrades from the "holds" and the "sells." The culmination of this bullish sentiment backdrop and weak technical performance is a Schaeffer's Equity Scorecard rating of 2.0 out of 10.0, indicating that XRX could have further to fall before it can reproduce its former status as an outperformer.

Click on the following link to see an Equity Scorecard, Weekly and Monthly Charts for XRX: http://www.schaeffersresearch.com/wire?ID=13637 .

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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 .