Schaeffer's Midday Options Update Features General Motors, Google, Humana, and Time Warner.

CINCINNATI -- Today's Schaeffer's Midday Options Update features General Motors (NYSE:GM), Google (NASDAQ:GOOG), Humana (NYSE:HUM), and Time Warner (NYSE:TWX). 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: Trading Options on Time Warner

Rising oil prices are going head-to-head with merger-and-acquisition chatter, resulting in a market that is notably mixed. The Dow Jones Industrial Average (DJIA) is fighting with the breakeven mark, having skipped above the 10,800 mark earlier today, only to have fallen back below the century level. The Nasdaq Composite (COMP) is negative territory by a fraction, and the S&P 500 Index (SPX) has edged slightly higher. Bonds were mixed as well, with the 10-year Treasury note slipping 3/32 while the 30-year bond is higher, up 7.32 to yield 4.612 percent.

Crude futures are on their way up today thanks to political tensions in the Middle East. The International Atomic Energy Agency voted this weekend to report Iran's nuclear program plans to the U.N. Security Council, citing an "absence of confidence" that the nation is developing these weapons for peaceful purposes. The sanctions and hostility that could arise from this decision have sparked worries of a supply disruption, as, according to an analyst with Fimat USA: "Iran's oil minister has said that oil exports would not be used as a bargaining chip, but that possibility must be considered, particularly if tensions escalate."

The General Speaks

The board of General Motors (NYSE:GM) is meeting behind closed doors today, and market watchers are eagerly waiting to see the fallout. Analysts suspect that the top executives at the troubled automaker could reduce the company's annual dividend payout. GM's dividend currently stands at $2.00 per share, yielding more than eight percent, the highest of all stocks in the Dow Jones Industrial Average. A 50-percent reduction of this payout to $1 per share would preserve roughly $500 million in cash flow, according to analysts' reports. The meeting is also expected to address the possible sale of the firm's credit arm GMAC, and discuss the addition of Kirk Kerkorian advisor Jerome York to the board. GM shares have gained some ground today, rising more than one percent to help keep the Dow within striking distance of the breakeven mark.

The S&P Ogles Google

Bear Stearns predicted today that Google (NASDAQ:GOOG) will be given a place in the S&P 500 Index, as it is the only name among the top-four Internet firms that is not yet included in the venerable grouping. "We believe inclusion to the index should be a positive catalyst for Google's stock," an analyst with Bear Stearns noted, "as funds should be prompted to buy into the stock in order to track the (SPX) and keep their weightings in-line..." If GOOG is named to the SPX, demand from index funds could rise by 20 million shares, or about seven percent of the stock's shares outstanding.

HUM an Earnings Tune

Health-insurance concern Humana (NYSE:HUM) said this morning that fourth-quarter profit rose 37 percent, thanks to a burgeoning Medicare business. The firm banked 39 cents per share on revenue that spiked 14 percent to $3.66 billion. Excluding items, HUM would have earned 46 cents per share, or a penny above analysts' expectations. Looking ahead to 2006, HUM boosted its forecast for the full year to $2.81 per share, or $2.70 per share on a non-GAAP basis. Analysts are currently expecting the company to bank $2.74 per share for the year. HUM is lower by slightly more than three percent in early-afternoon action and has slipped beneath its 10-week moving average.

Most-Active Options Update

At 1:57 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,789.9) has lost 0.03 percent. The S&P 500 Index (SPX - 1,264.11) has inched 0.01 percent higher, and the Nasdaq Composite (COMP - 2,256.2) is off by 0.28 percent. At 1:58 p.m. Eastern time, 2,224,843 calls have changed hands compared to 1,738,301 puts, equaling a single-day put/call volume ratio of 0.78. The CBOE's equity put/call volume ratio weighed in at 0.81.

Time Warner

Time Warner (NYSE:TWX) is the number-one media firm in the world, parenting such brands as Warner Brothers, Time Warner Cable, and America Online. The firm currently charts at #32 in the Fortune 500. Last Wednesday morning, the firm reported a 21-percent increase in fourth-quarter earnings. Net income rose to 29 cents per share, while revenue climbed seven percent to $11.89 billion. Analysts were expecting per-share results of 22 cents on revenue of $11.86 billion. The stock rallied four percent during the following session. Today, the company agreed to sell its book division to French media group Lagardere SCA for $537.5 million. The stock's recent move has lifted TWX out of a recent declining pattern and buoyed it into territory not explored since mid-September. The equity's 10-week and 20-week moving averages have now subsequently forged a bullish crossover.

While the short-term picture of TWX might be appealing, its long-term picture isn't nearly as bright. TWX has been stuck in no-man's land for about two years, shuffling sideways between the 16 and 20 levels, with no real sense of direction. In fact, the stock has moved no more than eight percent in either direction from the middle of this range (17.55).

The speculative players have descended upon TWX today, trading more than 12,000 options on the April 17 put (TWX PR), an out-of-the-money position with more than two months of life left before expiration. Honing in on the specific options trading activity, it appears as though the lion's share of today's action occurred shortly after the opening bell, as a block of 11,206 changed hands at the bid price of 0.15 per contract. This was indicated as a "spread" trade and was likely paired with the July 17 put (TWX SR), which saw the same sized block go off at the same precise time. In the case of the longer-dated option, it was traded at the ask price of 0.45.

The options-trading strategy at work here is likely a calendar spread, where the investor sold the April put and purchased the put with a more distant expiration. With a calendar spread, the maximum loss is limited to the net premium paid (in this case, 0.30 per contract). The investor seeks to profit by taking advantage of time value differentials. Calendar spreads can be beneficial even on stocks that are relatively inert, such as TWX.

While put trading has been popular on the Street today, TWX has generally been favored by the bullish contingent. The stock's Schaeffer's put/call open interest ratio (SOIR) reading stands at a new annual low of 0.32, with call open interest among the February, March, and April series handily outweighing put open interest.

Short sellers and analysts are also complacent with regard to TWX, despite its inability to stage any lasting rally. Currently, only 1.3 percent of the equity's float is sold short, representing a paltry short-interest ratio of 2.9 days to cover. Turning town Wall Street, there are currently 10 readings of "buy" or better on TWX, compared with just seven "hold" ratings and zero "sells."

The equity's combination of a long-term sideways trend against a complacent backdrop does not bode well for the stock, yet it doesn't equal a winning long-term bearish play either. Perhaps today's calendar-spread traders have the right idea, banking on continued malaise from the shares.

Click the following link to see a Daily Chart of TWX Since December 2005 and a Monthly Chart of TWX since October 2002: http://www.schaeffersresearch.com/wire?ID=15223 .

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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 .