Schaeffer's Midday Options Update Features Google, McDonald's, BlackRock, Morgan Stanley, and Yahoo!

CINCINNATI -- Today's Schaeffer's Midday Options Update features Google (NASDAQ:GOOG), McDonald's (NYSE:MCD), BlackRock (NYSE:BLK), Morgan Stanley (NYSE:MS), and Yahoo! (NASDAQ:YHOO). 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 Yahoo!

The major indices are not moving very far today. The Dow Jones Industrial Average (DJIA) is holding on to support at 10,900, a level that it has tested for the past four sessions.

U.S. Institute for Supply Management said its index of manufacturing activity fell to 54.8 in January, following December's reading of 55.6. Readings greater than 50 indicate expansion in the manufacturing sector. Analysts were expecting a more robust figure of 56.0 for the month. The new-orders index dropped to 58.0 from 59.1 in December, while the employment index for January came in at 51.3, down from 53.6 the previous month.

Google

In 1987 we had Black Monday, in 1992, Black Wednesday. Yesterday, Google's (NASDAQ:GOOG) multicolored logo provoked Blue, Red, Yellow, Blue, Green and Red Tuesday, though I'm inclined to doubt that the name will stick. Going into the earnings announcement after the bell, sentiment was largely positive and the stock logged a gain on the day of 1.37 percent. Alas, the estimates were overdone; the company missed, and trading was suspended for several minutes. In late trading, the stock was way down in the mid-three hundreds, but today GOOG has recovered, and is once again testing round-number support at 400. Opinion on the stock currently seems to be divided. UBS issued a downgrade to "neutral" from "buy." First Albany said it believes GOOG's current weakness creates a buying opportunity for patient investors, and Needham upped its target on the stock to $440. GOOG's target price was moved to $500 from $400 at Prudential.

Sale at Burger King

If your search for stock tickers, you'll find McDonald's (NYSE:MCD) quickly, as well as Wendy's International (WEN), but you won't find a ticker for Burger King, because it's a privately held company. This might change soon. For the first time in the fast-food chain's 52-year history, Miami-based Burger King plans to sell shares to the public. The Dow Jones Newswires describes the news as "part of an attempt to recoup ground lost in fierce competition with rivals McDonald's and Wendy's."

BlackRockfall

BlackRock (NYSE:BLK) has surrendered more than three percent today. Financial news network CNBC reported that negotiations for a deal between BLK and Morgan Stanley (NYSE: MS) have stalled due to pricing issues. The talks were first reported on January 20, after which BLK quickly sprinted 11 percent north to a new all-time high. The network opined that talks could reopen should BLK's stock price return to earth.

Most-Active Options Update

At 2:11 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,902.7) has added 0.35 percent. The S&P 500 Index (SPX - 1,279.75) has dropped 0.03 percent, and the Nasdaq Composite (COMP - 2,302.2) has shed 0.16 percent. At 2:11 p.m. Eastern time, 2,911,901 calls have changed hands compared to 1,938,408 puts, equaling a single-day put/call volume ratio of 0.66. The CBOE's equity put/call volume ratio weighed in at 0.66.

Yahoo!

Our featured stock today is Yahoo! (NASDAQ:YHOO) which, just like GOOG, was founded by two students at Stanford University in California. Some investors consider that YHOO lacks the opportunities that GOOG has brought, while others see it as a less turbulent ride.

YHOO's April 35 call (YHQ DG) traded, which started the day with open interest of 43,017 contracts, saw 10,747 contracts change hands by the time we grabbed our figures.

I notice that 3,000 contracts traded on the Philadelphia Stock Exchange a few seconds after 10:10 a.m. Eastern time this morning, and two blocks, each comprising 2,500 contracts, traded just before 10:18 a.m. on the American Stock Exchange. Remember that each contract is for 100 options, so a block of 3,000 contracts carries about the same amount of weight as 300,000 of the underlying stocks. To put this in context, YHOO was trading at $34.56 at last check.

From a technical perspective, the stock has managed substantial gains following a double-bottom formation in September 2001 and September 2002, at the four level. Last month, it hit a five-year high, which seemed a good sign. Alas, it ended the month by slipping below the 35 level, which now looks like potential resistance. The powerful 10-month and 20-month moving averages are also overhead, and might add resistance, too.

The daily chart of YHOO shows a bearish cross of the 10-day and 20-day moving averages that took place on January 19, and the stock now faces resistance from the 10-day moving average.

Let's take a look at the sentiment. Regular readers of this space know that we employ an Expectational Analysis(R) investment approach that seeks out bullish selections that have sound fundamental and technical backdrops but still have pessimism present in their sentiment background. For bearish selections, we target stocks with mediocre technical indicators set against a backdrop of optimism.

From Zacks I see that analysts award:

--15 "strong buys"

--5 "buys"

--7 "holds"

--0 "sells"

--0 "strong sells"

This coverage shows great optimism, and suggests that portfolios already hold an allocation of YHOO, a warning that sideline money might not be plentiful. However, the search sector is red hot, and looks as if it will stay hot throughout 2006 and probably 2007, too. If YHOO can return to its recent winning ways, it might receive a decent boost. Money might shift out of GOOG, especially as YHOO looks cheap just now. Also, YHOO and GOOG compete for the search business, but even a cursory glance at their home pages on the Internet show huge differences.

Short interest for the stock amounts to 6.5 percent of the float, and it would take more than 4.8 days to buy back all those shorted shares. If these turncoat short sellers suddenly transform into buyers, they can push the stock price yet higher and perhaps provoke further short covering. Typically, we like to see a short-interest ratio of at least five, but 4.8 is up there. There's a chance of short-covering support for YHOO just now.

The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.63 indicates that calls are more popular than puts in the February, March and April series of options. This SOIR reading is lower than 90 percent of readings taken during the past year, so it is definitely at the optimistic end of the spectrum. And remember, we're talking about YHOO today because someone was buying big blocks of calls. In fact, the front-month option configuration shows considerable accumulations of calls at nearly every strike from 35 up to 50.

Returning to the technicals, it occurred to me to check the Fibonacci retracement levels, because it looks as if one of them might be adding a layer of resistance. The levels that are most frequently examined at 38.2 percent, 50 percent, and 61.8 percent, and it is the 38.2-percent retracement level that grabbed the spotlight today. From the January 2000 high of $125.03 to the September 2001 low of $4.01, calculate the 38.2-percent level to be at $50.24. And I'd hazard a tentative guess that some brokerages have $50 as their target price for the stock.

Click the following link to see a Monthly Chart of YHOO Since October 2000 With 10-Month and 20-Month Moving Averages: http://www.schaeffersresearch.com/wire?ID=15147 .

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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 .