Schaeffer's Midday Options Update Features Home Depot, Hughes Supply, McAfee, Websense, and Exxon Mobil.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Home Depot (NYSE:HD), Hughes Supply (NYSE:HUG), McAfee (NYSE:MFE), Websense (NASDAQ:WBSN), and Exxon Mobil (NYSE:XOM). 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 Exxon Mobil

The Dow Jones Industrial Average (DJIA) passed 11,000 again today, this time falling through it rather breaking higher. Profit taking in Asia and Europe set the tone for the morning's trading, and the index had fallen as low as 10,950 before the clocks chimed 10.

Dodgy Fourth-Quarter Forecast

Shares in Phelps Dodge (PD) fell this morning after the mining and metal-processing company lowered its fourth-quarter guidance to reflect higher copper prices, sales shortfalls for copper and molybdenum, and accounting charges relating to its copper price protection program for 2005 to 2007. PD now sees earnings of $1 to $1.30 per share after a special charge of $2.05.

They'll Need a Bigger Depot

Home Depot (NYSE:HD) is to make its largest acquisition to date. The company has agreed to pay $46.50 per share for Hughes Supply (NYSE:HUG), a 21-percent premium over HUG's closing price yesterday. As part of the deal, HD will assume $285 million in debt. According to Hoover's, HUG distributes more than 350,000 products to construction, public infrastructure, and industrial customers. It has three business segments: Electrical and Plumbing, Water & Sewer/Building Materials, and Industrial, which includes industrial pipes, valves, and fittings. HUG buys from more than 11,500 suppliers and manufacturers and sells, mainly in bulk, to more than 100,000 professional customers.

OfficeMin

Office-supply retailer OfficeMax (OMX) is to close 110 stores in underperforming locations. This amounts to about 11 percent of the company's current store count, and the decision will result in pre-tax costs of about $141 million, according to the company's press release, which is entitled "OfficeMax Announces Actions to Strengthen Performance." OMX will also close its wood-polymer building-materials facility.

Job Security

Computer security firm McAfee (NYSE:MFE) is to bid farewell to President Gene Hodges, who will become President and CEO at Websense (NASDAQ:WBSN), where he replaces John Carrington who has served as CEO since May 1999. Hodges will receive options to buy 600,000 WBSN shares at an exercise price that is equal to the closing price on his first day in the new job. Mr. Carrington said, "We are delighted to welcome Gene as our new president and CEO. He is an experienced and well-respected leader in the information security industry, has a proven track record in building a billion dollar organization, and is an innovative and effective business manager. Gene's 11 years of experience in one of the world's leading security companies will be invaluable as Websense continues to expand its product offering from a 'nice-to-have' web filtering solution to a 'must-have' layer of web security."

Most Active Options

At 1:13 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,997.6) has shed 0.13 percent. The S&P 500 Index (SPX - 1,288.06) is 0.16 percent lower, and the Nasdaq Composite (COMP - 2,314.6) has lost on 0.18 percent. At 1:13 p.m. Eastern time, 2,967,805 calls have changed hands compared to 1,694,998 puts, equaling a single-day put/call volume ratio of 0.57. The CBOE's equity put/call volume ratio weighed in at 0.54.

Exxon Mobil

Back on September 22, Exxon Mobil (NYSE:XOM) hit an all-time high. Crude oil seemed to be achieving monotonic price gains, and some investors seemed to be putting half their capital into oil stocks and the other half into oil-service stocks.

Alas, parties tend not to last forever, and XOM has trended sideways for some time, now, with the 60 level serving as a ceiling and 55 offering itself up as a rather shaky floor.

Resistance at the 60 level is evident in the options configuration for January. Open interest on the January 60 call (XOM AL) was 90,263 contracts before the bell rang this morning. A further 9,708 contracts had crossed the tape by the time we grabbed our figures this afternoon, and it will be interesting to see if these translate into new open interest. I'll report back tomorrow.

On the daily chart we see that XOM bumped against the 60 level on many occasions in the past few months, and the resistance has held firm.

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 equities that have sound fundamental and technical backdrops but still have pessimism present in their sentiment background.

We track a diverse range of sentiment measures, but three of the popular ones are:

--Analyst ratings, to gauge Street sentiment

--Equities sentiment, in the form of short selling 

--Options sentiment, in the form of put/call ratios and trends, and peak open interest

From Zacks I see that analysts award:

--12 "strong buys"

--4 "buys"

--4 "holds"

--0 "sells"

--0 "strong sells"

This coverage shows great optimism. The "strong buy" is supposed to be rare, and to see 60 percent of the ratings at this elevated level, we have to consider the possibilities of downgrades.

Short interest fell more than 11 percent during December, and it would take less than two days to cover the 32.9 million shares sold short. We monitor short interest because sometimes good news comes along and pushes a stock's price up sharply. This might shake out some of the short sellers, who suddenly see that it will cost more money to buy their stocks back than they tucked under the mattress when they originally sold the positions. If these turncoat short sellers suddenly transform into buyers, they can push the stock price yet higher and perhaps provoke further short covering. We usually take note when the short-interest ratio passes five.

The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.49 indicates that calls are twice as popular as puts in the January and February series of options. (There are currently no March options for XOM, so we include just the first two months in our calculations.) This SOIR figure is lower than 84 percent of readings taken during the past year, so it lies toward the optimistic end of the spectrum.

To summarize, we have a stock here that has languished since February, with optimistic sentiment from Wall Street and from options enthusiasts, and clear signs of complacency from equities investors. The stock earns itself a Schaeffer's Equity Scorecard reading of 3.0 out of 10 suggesting that the downside is the more attractive direction.

Click on the following link to access a Daily Chart of XOM Since May 2005: http://www.schaeffersresearch.com/wire?ID=14964 .

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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 .