Schaeffer's Midday Options Update Features Mittal Steel, Nucor, and AK Steel.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Mittal Steel (NYSE:MT), Nucor (NYSE:NUE), and AK Steel (NYSE:AKS). 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.

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Options Update: These Options are a Steel

As we head into the latter half of the trading day, the major market indices remain in negative territory. Apprehension ahead of tomorrow's Fed decision on interest rates seems to be ruling the day, overshadowing a wave of earnings data. Meanwhile, December crude oil futures have added 54 cents to sits at $59.35 a barrel. Traders have turned their attention away from key oil producers' production cut to expectations for a fall in last week's U.S. distillate supplies.

Most-Active Options Update

At 2:09 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,112.7) has given up 4.2 points, while the S&P 500 Index (SPX - 1,374.35) is down 2.67 points. The Nasdaq Composite (COMP - 2,341.9) has slipped 13.9 points. At 2:10 p.m. Eastern Time, 3,228,519 calls have changed hands compared to 2,489,032 puts, equaling a single-day put/call volume ratio of 0.77. The CBOE's equity put/call volume ratio stands at 0.79, while the ISE's ratio weighs in at 0.77.

Mittal Steel & Nucor

You are getting a two-for-one special in today's edition of Options Update. Two steel companies, Mittal Steel (NYSE:MT) and Nucor (NYSE:NUE), have made our most-active options list today, riding the coattails of an earnings report from AK Steel (NYSE:AKS) and strength in commodities. For reference, AKS reported third-quarter earnings of 36 cents per share versus the consensus estimate of 34 cents per share. So far today, AKS has rallied more than three percent, while MT was last up 3.5 percent and NUE had added more than seven percent.

In news around the steel sector, merger talks among overseas producers, recent production cuts, and bullish sentiment heading into the earnings season have all been factors for boosting the steel sector. While Barron's recently cited U.S. Steel (X) as perhaps "the biggest prize in the consolidating global steel industry," the rest of the sector is benefiting greatly from this added attention. In fact, the Dow Jones U.S. Steel Index (DJSTL - 294.89) has outperformed the S&P 500 Index (SPX) since July 2005.

Turning our attention to MT and NUE, the stocks have seen some rather sizeable call activity today, reinforcing the continued build in optimism toward the sector from investors. More than 17,000 calls have crossed at MT's December 37.50 strike today, on open interest of 18,240 contracts, while NUE has seen more than 11,000 calls change hands at its November 60 strike, with open interest of 12,238 contracts. Both stocks have rallied amid rising optimism, as MT's Schaeffer's put/call open interest ratio (SOIR) has plunged from its mid-August reading of about 0.65 to today's perch at 0.51, while NUE's SOIR has fallen from a reading of 0.84 on October 11 to rest at 1.15 today. A look at the securities' SOIR charts, however, reveals that this normally contrarian reading has had bullish implications for NUE and MT.

Neither SOIR readings are near bearish or bullish extremes, so option activity needs to develop a bit more before it sends up buy or sell signals. Looking at short-selling activity, however, there appears to be some sideline money available for both stocks to continue their rallies, at least for a little while longer. More than 16 percent of MT's float is sold short, while about 4.4 percent of NUE's float is shorted. Both of these indicators hint that short sellers could be squeezed out of their positions should the stocks continue their runs higher.

Meanwhile, Wall Street is backing MT with five "buy" or better ratings, while NUE has more room to grow, with seven of the 10 covering analysts rate the stock a "hold" or worse. With NUE up more than seven percent on the day, a continuation of this technical strength could be just the catalyst to usher in some bullish opinions from the Street.

Finally, both stocks look solid from a technical perspective. NUE's monthly chart looks much more impressive, as the security has rallied along its 10-month and 20-month trendlines since April 2003, gaining a whopping 526 percent during this time frame. MT is none too shabby itself, as the equity has surged some 1,245 percent during the same time frame. But have the shares overextended themselves recently? Looking at monthly charts for both, I see some trouble looming on the horizon. MT has long found resistance in the 43 region, being rejected five times in this area since November 2004. Meanwhile, NUE must deal with the round-number 60 level. It may seem that NUE has an easier road ahead of it, since it has only been rejected at this region once, but there is a heavy degree of call open interest in residence at this strike in the front three months of options.

Unfortunately, the sentiment backdrop for both stocks doesn't impress me enough to back either horse as a bullish candidate. While the trend is your friend, there are significant roadblocks for both securities on the technical front to make me worry, and without a convincing amount of sideline money being revealed in the sentiment indicators, I feel that both NUE and MT could be flat to lower in the coming months. As always, thank you for reading and good luck with your trading.

Click here to see a Monthly chart of NUE since April 2003 with 10-month and 20-month moving averages and a Monthly chart of MT since April 2003 with 10-month and 20-month moving averages: http://www.schaeffersresearch.com/wire?ID=17615 .

The best way to take advantage of the timely Schaeffer commentaries is to sign up to receive their free e-newsletters -- Opening View, Market Recap and Monday Morning Outlook. Click here to have the Schaeffer's commentaries delivered to you free via email every day and get entered to win an iPod Nano. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU13M&PAGE=1 .

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 .