Schaeffer's Midday Options Update Features Johnson & Johnson, Atari, XM Satellite Radio Holdings, Verizon Communications, and Sara Lee.

CINCINNATI -- Today's Schaeffer's Midday Options Update Features Johnson & Johnson (NYSE:JNJ), Atari (NASDAQ:ATAR), XM Satellite Radio Holdings (NASDAQ:XMSR), Verizon Communications (NYSE:VZ), and Sara Lee (NYSE:SLE). 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=PROB1M&PAGE=1 .

No More Tears at Johnson & Johnson

Economic data started the Street off on the right foot this morning, as positive reports from the U.S. Labor Department and the Commerce Department send the equity market higher in early trading. For the record, the Labor Department announced that initial jobless claims for the most recent week dropped by 13,000 to a seasonally adjusted 303,000 - its lowest level in four years. Firming things up a bit more (at least for the currency market) the Commerce Department reported that the U.S. trade deficit narrowed by 4.9 percent in December to $56.4 billion, down from November's reading of $60.3 billion. The results were also in line with the Street forecast of $56.9 billion.

Crude prices are weighing a bit more heavily on the Street today following yesterday's reported decline in petroleum supplies. Recent data from the International Energy Agency showed a marked decline in crude and distillate supplies, with the agency noting that demand is rising faster than expected. So far today, crude for March delivery is flirting with the $47 level, with the contract last seen up $1.44 at $46.90.

Nobody Sells it Like Sara Lee

Topping the headlines this morning was a spin-off move by multi-faceted apparel and bakery firm Sara Lee (NYSE:SLE). The company announced that it will spin off its $4.5 billion apparel business, while selling three other businesses, including its Europe-based packaged meats unit for $1.1 billion, its direct retail unit for $450 million, and its U.S. retail coffee business for $300 million. SLE already had its European apparel business on the auction block for $1.8 billion. It would seem that this mass sell-off at SLE comes at a time of leadership change for the company, as Brenda Barnes was named Chief Executive Officer, succeeding C. Steven McMillan, who will remain Chairman until October 2005.

What... Is your Qwest?

Telecommunications firm MCI Inc. (MCIP) is apparently now the popular date on the block following its recent emergence from bankruptcy. Just one week after Qwest Communications (Q) offered a bid of $6.3 million for the firm, blue-chip telecom giant Verizon Communications (NYSE:VZ) has reportedly has made an informal offer to acquire MCIP. According to the Wall Street Journal, VZ's informal offer is very similar to the one offered up by Q, with sources familiar to the matter stating that talks between the two companies have become "meaningful" in recent days.

Pitfall at Atari

Once a giant in the console gaming industry, Atari (NASDAQ:ATAR) has remade itself as a producer of solid video games titles. However, investors may want to beware of the water lizards in ATAR's latest earnings report. Net income for the firm fell to $19.6 million, or 16 cents per share, in the latest quarter, down from last year's $23 million, or 19 cents per share. Revenue also took a plunge, arriving at $161.8 million compared to the $190.6 million reported last year. These figures also disappointed the Street's view for earnings of 15 cents per share on revenue of $167.9 million. Replay value for the firm isn't looking all that positive either, as ATAR lowered its fourth-quarter forecast. The company now anticipates net revenue of $70 million to $80 million, with a net loss of up to $10 million, or eight cents per share. The consensus had expected fourth-quarter revenue at $98.7 million, with earnings of five cents per share. ATAR shares were last seen down more than 10 percent following the news.

Radio Friendly Unit Shifter

XM Satellite Radio Holdings (NASDAQ:XMSR) is looking for a higher orbit this morning after the company reported a narrower-than-expected fourth-quarter loss. For the quarter, XMSR logged a net loss of $188 million, or 93 cents per share, up from its loss $170.2 million, or $1.12 per share, in the same period last year. Revenue rocketed 148 percent to $83.1 million over the prior year's $33.5 million. Analysts were expecting the company to post of loss of $1.02 per share on revenue of $81 million. Subscribers for the popular satellite radio broadcaster jumped by 1.8 million net subscribers in 2004, an increase of 137 percent over 2003. The flood of new users allowed XMSR to exceed its year-end forecast by 125,000 subscribers.

Most-Active Options Update

At 1:45 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,737.7) is up 0.68 percent and the S&P 500 Index (SPX - 1,196.69) is higher by 0.39 percent. The Nasdaq Composite (COMP - 2,055.6) is up 0.15 percent. At 1:46 p.m. in the options pits, 1,917,197 calls and 1,477,778 puts traded for a composite put/call ratio across all six exchanges of 0.77. The CBOE put/call ratio for equity options weighed in at 0.80.

Johnson & Johnson

Your favorite healthcare products manufacturer Johnson & Johnson (NYSE:JNJ) is once again garnering a fair amount of attention in the option pits today. It would seem that after a long month of pessimistic put slinging that the speculative option crowd has renewed its interest in JNJ calls. While this modest change of heart is evident in the recent decline in the equity's Schaeffer's put/call open interest ratio (SOIR) from 1.05 (JNJ's highest reading of the past year) to its current perch at 1.01 in the 98th percentile (still a decidedly bearish reading), today's activity seems to be perpetuating this bullish push. For instance, nearly 5,000 calls have changed hands so far at the security's February 60 strike. With open interest of only 2,466 contracts, much of today's speculation could result in new bullish positions for the stock.

Meanwhile, short sellers are moving in the opposite direction, as the number of JNJ shares sold short increased by 17 percent during January. However, the stock's short-interest ratio still ranks at a modest 3.33 days to cover, indicating that the equity could receive a negligible boost from a covering rally (but don't expect too much). Wall Street, on the other hand, seems to be torn on JNJ. According to Zacks, nine of the 18 covering analysts rate the shares a "buy" or better, with the remaining nine issuing "hold" ratings. This may appear to be a split decision on the stock from analysts, keep in mind that the absence of "sell" ratings leaves plenty of space to fill on the downside should JNJ disappoint this influential group.

On the technical front, JNJ turned higher in late January following a retest of support at its 10-week moving average. The combined support of this trendline and its 20-week counterpart has pushed the shares upward since April 2004. Furthermore, renewed support at the stock's 10-day and 20-day moving averages has propelled JNJ into a series of new all-time highs. Currently the security is consolidating into its 10-day trendline as it prepares to make another run at potential resistance in the 66.50-67 area.

Pulling this combination of lingering pessimistic investor sentiment and exemplary technical performance together has earned JNJ a Schaeffer's Equity Scorecard rating of 7.0 out of 10.0. This elevated reading indicates that should the shares continue to rally higher, bearish investors may be forced to cover their positions and add buying pressure to the stock.

Click on the following link to see the Weekly Chart of JNJ since April 2004 With 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=12491&obspage=2 .

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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 .