Schaeffer's Midday Options Update Features IBM, Visteon, AstraZeneca, Celgene, and Albertson's.

CINCINNATI -- Today's Schaeffer's Midday Options Update features IBM (NYSE:IBM), Visteon (NYSE:VC), AstraZeneca (NYSE:AZN), Celgene (NASDAQ:CELG), and Albertson's (NYSE:ABS). 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: Investment Strategies for IBM

It appears that the market is poised to make a repeat performance of yesterday. The major market indices started the session in positive territory, but have since begun to pull back toward breakeven. In economic news, mortgage applications dropped 6.8 percent during the week of December 23 from the previous week on a seasonally adjusted basis, according to the Mortgage Bankers Association. The average contract interest rate for 30-year fixed-rate mortgages fell one basis point to 6.22 percent for the week. Meanwhile, U.S. consumer confidence rebounded in December to 103.6 from a revised 98.3 in November. Economists had predicted an increase to 103.1. In the retail sector, the International Council of Shopping Centers announced that retail chain-store sales rose 3.9 percent for the week of December 24, compared to the year-ago period. The increase was fueled by last-minute shoppers and a late Hanukkah.

Let's Make a Deal 

AstraZeneca (NYSE:AZN) unveiled its fourth deal of the month, agreeing to license the TC-1734 compound to treat Alzheimer's disease, cognitive deficits in schizophrenia, and other cognitive disorders from Targacept for as much as $300 million in milestones and stepped double-digit royalties. AZN is paying $10 million upfront, $26 million for research support, and $20 million more if the firm decides to start another Phase II study.

Elsewhere, Celgene (NASDAQ:CELG) announced that the Food and Drug Administration (FDA) has approved its drug Revlimid for the treatment of transfusion-dependent anemia. The company stated that the later-than-expected FDA approval for Revlimid will result in a $5-million increase in pre-launch expenses. The firm now expects 2005 earnings of 36 cents to 38 cents per share. In other news, CELG stated that Chief Executive John Jackson will retire on May 1 and be replaced by Sol Barer. Jackson will remain chairman, and Robert Hugin will take over for Barer as president and chief operating officer. Furthermore, CELG declared a two-for-one stock split with a record date of February 17 and a distribution date of February 24, pending shareholder approval.

Hasta la Visteon

Visteon (NYSE:VC) has tumbled more than five percent today, as investors are reacting negatively to VC's role in the new shake-up in stock listings on the S&P 500 Index. Standard & Poor's announced that it is removing the struggling auto parts maker from the SPX due to low market capitalization, adding to this year's list of woes for the company. After the index closes on Friday, CBS Corp. (CBSWI) will replace VC in the broad-market indicator. Stocks dropped from the SPX usually take a hit as many fund managers are required to prune them from portfolios.

Al Be Sure

Albertson's (NYSE:ABS) received a bit of a boost from J.P. Morgan when the brokerage firm upgraded the shares to "neutral" from "underweight." The company noted that the recent "bungled" acquisition talks open the door for shareholder activists. Specifically, analyst Stephen Chick wrote in a note to investors that a deal doesn't appear to be in the cards anymore, and he sees the stock as fairly valued.

Most-Active Options Update

At 1:36 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,796.5) has added 0.18 percent. The S&P 500 Index (SPX - 1,258.54) is up 0.17 percent, and the Nasdaq Composite (COMP - 2,225.9) has lost 0.04 percent. At 1:37 p.m. Eastern time, 1,359,507 calls have changed hands compared to 966,373 puts, equaling a single-day put/call volume ratio of 0.71. The CBOE's equity put/call volume ratio weighed in at 0.70.

IBM

As we learned yesterday in this spot, options trading strategies can be as diverse and as varied as the capital you have to invest in them. Today, however, IBM (NYSE:IBM) has made our most active list with a little straightforward call buying. So far, more than 5,000 January 90 calls (IBM AR) have changed hands on the Street, with most of the activity crossing at the ask price, suggesting that this activity was buyer initiated. However, there are currently more than 55,000 of these bullishly oriented contracts already in residence at this front-month contract, so we will have to wait until tomorrow to see just how many of these contracts translate into new open positions.

Digging a little deeper into IBM's options outlook, we find that call buying is not all that new of an investment strategy for this speculative crowd. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) has fallen from its December 21 perch at 0.67 in the 28th percentile to today's reading of 0.65 in the 25th percentile, indicating an increase in the bullish contingent in the options pits.

Short selling is a very popular stock trading strategy that investors utilize in the event that they believe that shares of a particular equity are primed for a fall. However, this bearish investment vehicle has largely been overlooked by IBM investors. During December, the number of IBM shares sold short dropped by 13 percent, leaving us with a short-interest ratio of less than two days to cover. From our contrarian perspective this lack of short interest leaves IBM sorely lacking in the short-covering support department.

Wall Street, meanwhile, has fallen in line with the bullish majority. According to Zacks, 14 of the 17 covering analysts rate Big Blue a "buy" or better. On an outperforming issue this would not be much of a problem, as optimism is to be expected on outperformers. However, as you will shortly see, IBM is far from an outperforming equity, placing it at risk to downgrades from this loving bunch of analysts.

Speaking of technicals, IBM was handed a sharp pullback recently, as the shares were once again rejected in the 90 area. This drop has placed the stock at the juncture of key support levels. IBM has broken below its 20-day moving average and is threatening to once again drop below its 10-day trendline in today's session.

Elsewhere, the shares have given up support at their 10-week moving average and are clinging to their 20-week trendline. Adding to the potential support in this area is the 83 level, which IBM has used as a trampoline during the past several weeks. Now, the problem with all this support is that the sentiment doesn't seem to back up any hopes for a rebound. I know that stocks can act irrationally longer than you can remain solvent, but in the event that IBM does breach the region of support that lies just below the security's current position, the downside risk is tremendous.

Click on the following link to access a Daily Chart of IBM Since September 2005 With 10-Day and 20-Day Moving Averages and a SOIR Chart of IBM Since December 2004: http://www.schaeffersresearch.com/wire?ID=14884 .

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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 .