Schaeffer's Midday Options Update Features Kmart Holding, Costco Wholesale, Citigroup, General Motors, and American Eagle Outfitters.

CINCINNATI -- Today's Schaeffer's Midday Options Update Features Kmart Holding (NASDAQ:KMRT), Costco Wholesale (NASDAQ:COST), Citigroup (NYSE:C), General Motors (NYSE:GM), and American Eagle Outfitters (NASDAQ:AEOS). 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 .

Blue-Light District

As Alan Greenspan testifies before the House Budget Committee on the budget-centric topics of tax hikes, social-security reform, and personal accounts, the equity market has rallied just above the break-even level after spending much of the morning in negative territory. American International Group (AIG) is the worst-performing stock on the Dow Jones Industrial Average so far today, following threats that New York State's probe of the insurance industry may expand overseas. The Dow has shaken this setback off in impressive fashion, notching a new 52-week high in midday activity.

Crude oil prices have rallied on the New York Mercantile Exchange to hurdle through the $52-a-barrel level. This rally comes despite today's report from the U.S. Energy Department, which noted that commercial inventories of crude oil increased 2.4 million barrels during the week to 299.4, nine percent above year-ago levels. Analysts were expecting a more modest increase of just 1.0 million. Gasoline supplies are up by one million barrels, a 10-percent improvement over last year's reserves at this time.

The COST of Doing Business

Very early this morning, warehouse-retailer Costco Wholesale (NASDAQ:COST) declared second-quarter earnings of 62 cents per share, a 29-percent advance over year-ago figures. As the most recent reporting period included a tax benefit and a non-cash charge, earnings excluding items totaled 54 cents per share, a penny shy of Wall Street's consensus view of 55 cents. A Merrill Lynch analyst said this negative surprise was the result of higher-than-expected costs related to opening new locations. Prudential chalked up the disappointment to a decline in new-store productivity. In other financial news, COST revenue was up 9.6 percent during the period to $12.66 billion, while same-store sales rose seven percent. COST shares have gapped more than four percent lower today on heavy volume. For recent Bernie Schaeffer analysis on COST, please refer to this link (www.schaeffersresearch.com/commentary/observations.aspx?click=home& ID=12590). (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)

Sin of the Citi?

Just before the opening bell, Citigroup (NYSE:C) issued a press release stating its decision to settle a class-action lawsuit brought on behalf of Global Crossing (GLBC) stock purchasers. The lawsuit related to alleged research discrepancies, and sought damages related to losses suffered at the hands of the telecom company, which emerged from bankruptcy in 2003. Admitting no legal violations, C, which was the underwriter of several GLBC stock offerings, will dish out $75 million pre-tax, amounting to $46 million after tax. The sum will be distributed to all investors that publicly traded GLBC shares between February 1, 1999, and December 8, 2003. The final plan to allocate the settlement amount will ultimately require approval from the courts. In unrelated news, brokerage CIBC initiated new coverage on C with a "sector performer" rating this morning.

The Auto Show

Tuesday afternoon, General Motors (NYSE:GM) , the world's largest automaker, said vehicle sales dropped 12.7 percent in February, compared to analysts' expectations for a five-percent decline. Ford Motor (F) swallowed its ninth consecutive monthly sales decline, as auto sales dropped three percent, topping expectations for a six-percent pullback. Breaking down the numbers slightly, GM said truck sales slipped nine percent lower and car sales were down 17 percent. Truck sales at F were off eight percent, but car sales managed to rise nine percent, thanks in part to the newly designed Mustang. Both companies lowered first-quarter production plans, which will likely impact revenue and profit numbers. DaimlerChrysler (DCX) was a bright spot among the Big Three, posting a 21.1-percent increase in car sales and a four-percent boost in truck sales, for a total gain of 7.5 percent. Across the Pacific, Toyota said U.S. sales climbed 11 percent from the previous year and Nissan posted its best February on record with a 10-percent sales increase.

Fly Like an Eagle

American Eagle Outfitters (NASDAQ:AEOS) peddles its trendy apparel wares in shopping malls throughout the country, appealing to America's youth and hip adults. According to Hoover's, the retailer operates about 800 stores in the U.S. and Canada. This morning, AEOS announced record February sales of $127.0 million, a 41.8-percent increase over the previous year. Same-store sales jumped by an impressive 32 percent during the month. In the fourth quarter, the firm posted earnings of $1.32 per share, up from 49 cents per share in the year-earlier period. Excluding items, the retailer notched earnings of $1.40, or a penny above analysts' consensus forecasts. Looking forward, AEOS boosted its first-quarter outlook to a range of 52-54 cents per share. This is above the firm's previous estimates of 43-to-45 cents and past Wall Street's consensus estimate of 47 cents per share. In the year-ago period, AEOS collected first-quarter earnings of 36 cents per share.

Most-Active Options Update

At 1:24 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,851.3) has tacked on 0.20 percent while the S&P 500 Index (SPX - 1,214.51) has advanced 0.34 percent. The Nasdaq Composite (COMP - 2,078.9) is higher by 0.36 percent. At 1:25 p.m. in the options pits, 1,744,961 calls and 1,200,069 puts traded for a composite put/call ratio across all six exchanges of 0.68. The CBOE put/call volume ratio for equity options weighed in at 0.70.

Kmart Holding

Venerable retailer and Sears (S) bedfellow Kmart (NASDAQ:KMRT) has garnered some atypical attention from options players today. The out-of-the-money April 90 put, which was heretofore home to fewer than 1,000 open positions, has seen more than 4,000 contracts cross the tape on Wednesday. Several blocks of 100-200 contracts changed hands during the lunch hour.

Technically speaking, KMRT shares have maintained a long-term upward path along their ascending 10-month moving average since early 2004. Over the past four months, this uptrend has resolved into a sideways consolidation phase, with the shares moseying between the 90 and 110 levels. This week, KMRT has posted some gains, overtaking its colliding 10-week and 20-week moving averages in the process. Today alone, KMRT has tacked on more than three percent, swooping into triple-digit territory.

Putting the stock through a battery of Expectational Analysis(R) (www.schaeffersresearch.com/shop/smp_faq.aspx) tests, it comes up fairly mediocre, earning a Schaeffer's Gold Score (www.schaeffersresearch.com/promotions/gold/gold091404.aspx) ranking of 6.0 out of a possible 10.0.

Part of the reasoning behind this score are the less-than-conclusive findings with regard to sentiment data. The stock's Schaeffer's put/call open interest ratio (SOIR), which measures options activity in the front three-months' series (and is therefore more speculative in nature), has mounted a short-term uptrend but still weighs in at 0.92, in the 49th annual percentile.

Meanwhile, short-interest spiked by 12 percent last month to a multi-year high of 11.5 million. More than 21 percent of the stock's float is currently sold on the short side. Should KMRT return to its uptrending ways anytime soon, short sellers could be spooked into covering their bearish positions. And according to the equity's short-interest ratio, it would take them about six-and-a-half days to clear out all of the shorts entirely. The analyst community has averted its collective eyes from KMRT, for the most part. According to Zacks (www.Zacks.com) data, there are just two "hold" ratings on the stock, with nary a "buy" or "sell " to be found.

Click on the following link to see the Equity Scorecard and Weekly Chart of KMRT since February 2004 With 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=12636&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 .