Schaeffer's Midday Options Update Features Microsoft, Research in Motion Limited, Hormel, Petco, and Wind River Systems.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Microsoft (NASDAQ:MSFT), Research in Motion Limited (NASDAQ:RIMM), Hormel (NYSE:HRL), Petco (NASDAQ:PETC), and Wind River Systems (NASDAQ:WIND). 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=PRMOU11M&PAGE=1 .

Options Update: Is Microsoft a Turkey?

This morning, the Labor Department announced that U.S. initial jobless claims increased to 335,000 in the past week, reaching the highest level in a month. The market displayed little to no reaction to this news, as it seems that investors were more focused on yesterday's news from the Federal Open Market Committee and today's weekly oil inventory reports. The University of Michigan also reported that its headline Consumer Sentiment Index advanced to 81.6 in late November from last month's reading of 79.9.

Crude prices have dropped following today's inventory news from the Energy Department. According to the government, crude supplies increased by 400,000 barrels last week, bringing the total stockpile to 321.8 million barrels, above the upper end of the average range for this time of year. The American Petroleum Institute posted an increase of 3.35 million barrels of black gold in its weekly report. Currently, the price for a barrel of crude has dropped 69 cents to $58.15 per barrel.

Research in Backward Motion

Research in Motion Limited (NASDAQ:RIMM) has moved lower this morning, as investors have reacted to an announcement that subscriber additions for the third quarter are expected to come in eight percent lower. The BlackBerry maker blamed the drop on unanticipated delays in the launch of two of its next handsets have given it reason to lower its subscriber additions for the quarter to come in below its previous forecast of 680,000 to 710,000. RIMM stated that its new handsets, the BlackBerry 8700 series for EDGE networks and the BlackBerry 7130 series for EV-DO networks only became available to business customers this week. National availability is expected in December for the new handsets. The company's original forecast was based on early November availability. Looking forward, the firm sees fourth-quarter additions coming in three percent below its prior outlook for 775,000 to 825,000 subscribers.

Spam, Spam, Spam, Spam, Earnings, and Spam

Monty Python's favorite purveyor of processed foods, Hormel (NYSE:HRL) posted fourth-quarter earnings of 59 cents per share, beating the Street's estimate by two cents per share. That's the good news; the bad news is that the company's sales came in short of the consensus estimate. HRL's sales increased by 9.9 percent to $1.48 billion, but the Street expected $1.51 billion. Moreover, the food firm's top-line would have dropped two percent if it weren't for contributions from acquisitions. Turning an eye to the future, HRL served up a forecast of 44-50 cents for the fourth quarter (including a four-cent charge), and fiscal earnings between $1.86 and $1.96 (the Street expects $1.80 per share).

Getting Their Nose Rubbed In their Mistake

I remember doing that to my dogs when we were housetraining them, and that is what investors are doing to Petco (NASDAQ:PETC) today. The company lost more than 12 percent in after-hours trading yesterday and today has been no different, with a drop of more than seven percent. The company posted third-quarter earnings of 23 cents per share, and a margin drop from 35.4 percent to 31.6 percent. This wasn't the only bad news, as PETC then forecast fourth-quarter earnings of 44-48 cents per share, short of the estimated 50 cents per share. The company followed this up with a full-year forecast between $1.29 and $1.33 per share, short of the consensus estimate for $1.38 per share.

And the WIND Cries, Earnings

Wind River Systems (NASDAQ:WIND) posted third-quarter net earnings of six cents per share, compared to earnings of three cents per share in the prior year's third quarter. WIND posted pro-forma earnings of eight cents per share for the quarter, one cent better than the consensus estimate. The company also saw revenue of $67.6 million in the quarter, the consensus estimate was for revenue of $67 million.

Most-Active Options Update

At 2:36 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,948.1) has added 0.70 percent. The S&P 500 Index (SPX - 1,270.45) has added 0.73 percent, and the Nasdaq Composite (COMP - 2,268.9) has advanced 0.68 percent. At 1:54 p.m. Eastern time, 2,927,917 calls have changed hands compared to 1,706,616 puts, equaling a single-day put/call volume ratio of 0.58. The CBOE's equity put/call volume ratio weighed in at 0.55.

Microsoft

Today, the options players have piled into December 27.50 calls for Microsoft (NASDAQ:MSFT). Other than the hoopla surrounding the highly anticipated release of the company's Xbox 360 gaming system, news this morning was that the company has signed an agreement with Movie Gallery (MOVI) for a joint promotion of said system. MOVI will give away 60 of the systems with one winner being selected each day through January 6. Each time a member rents a movie, he/she will be entered in the contest. This news had more impact on MOVI than it did on MSFT, which has gained 0.32 percent.

It is hard to deny the company's recent performance, gaining significant momentum since the beginning of October. In fact, I have to admit that the gains have been impressive, but that is if I simply focus on the short term. Let's look at MSFT's long-term performance when compared to its compatriots in the Dow Jones Industrial Average (DJIA). Since 2000, the shares have dropped when compared to the blue-chip barometer.

Checking out MSFT's performance on its own during roughly the same period, notice that the shares have been tracking sideways. In fact, the channel that the shares inhabit has narrowed to the 24-28 range, where the shares have ping-ponged since late 2002. Currently, the shares are peaking just below the 28 level, leaving me to believe that they will be turned away, and subsequently drop back to the support of the 24 level. Will the new gaming system help spur December sales that will help break this barrier? We have to see, but some early reviews are showing some disappointment with the Xbox 360.

Looking at MSFT's Schaeffer's put/call open interest ratio (SOIR), it seems that options players may be catching on to the company's sideways ways. The sultan of software's SOIR checks in at 0.60, which is higher than 67 percent of the readings taken during the past 52 weeks.

While there may be some sense to the SOIR rating for MSFT, the lack of pessimism from short sellers and analysts leaves me a bit worried for the bulls out there. Short sellers decreased their positions to the tune of a 28.5-percent drop in October (we're still waiting for the Nasdaq to release November data). As a result of this unwinding of optimism, it would take slightly more than one day to cover the shorted shares. Bottom line, you nor the shares should hold your breath waiting for a short-covering rally to help push the shares higher.

Now, let's see how the analysts feel about MSFT. According to Zacks, 89 percent (16 of 18) of the analysts covering the company rate it a "buy" or better. In fact, 11 of those ratings fall in the "strong buy" category, which leaves one direction for the shares to go . . . lower.

Click on the following link to access a Monthly Chart of MSFT Since January 2000: http://www.schaeffersresearch.com/wire?ID=14661 .

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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 .