Schaeffer's Midday Options Update Features PepsiCo, Cisco Systems, McDonald's, and Pfizer.

CINCINNATI -- Today's Schaeffer's Midday Options Update features PepsiCo (NYSE:PEP), Cisco Systems (NASDAQ:CSCO), McDonald's (NYSE:MCD), and Pfizer (NYSE:PFE). 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: Trading Options on Pfizer

U.S. markets are rebounding following two humdrum days, inspired by positive news from the earnings confessional. The rally isn't terribly broad, however, as decliners are leading advancers by a margin of 17 to 13 on the New York Stock Exchange. On the Nasdaq, losers have edged out winners, 14 to 13.

Crude futures are down again today following a surprise increase in U.S. gasoline supplies. Crude futures recently traded at a five-week low of $62.55 a barrel, down 54 cents, while March gasoline futures slipped 37 cents to $1.557 per gallon, a level not touched since November.

Gold futures continued to retreat, posting a new three-week low of $550 an ounce. Other metals were mixed in midday trading; platinum futures were lower, copper was up slightly, and silver has gained 1.5 cents to $9.425 an ounce.

Cola Wars 

Following Coca-Cola's (KO) turn in the earnings confessional on Tuesday, PepsiCo (NYSE:PEP) stepped up to the plate this morning to report its fourth-quarter earnings results. The parent of Tropicana, Gatorade, and Mountain Dew, as well as various salty treats from its Frito-Lay branch matched Wall Street expectations of 65 cents per share, or $1.1 billion. In the same quarter last year, PEP earned $985 million, or 58 cents per share. Revenue climbed 15 percent to $10.1 billion, helped by strong sales at its Frito-Lay North America unit. Looking forward, PEP expects 2006 earnings to reach at least $2.93 per share, which is in line with analysts' projections. At last check, the stock was up more than one percent. This move has hurdled the shares through their 10-day moving average, above which the stock has closed only once since January 6.

Cisco Fever

After Tuesday's closing bell, Cisco Systems (NASDAQ:CSCO) announced a second-quarter profit of $1.38 billion, or 22 cents per share, as revenue climbed 9.3 percent to $6.63 billion. Excluding items, the company's income totaled 26 cents per share, a penny above Wall Street's expectations. Corporate sales of network-data switches, the company's largest business unit, rose by 12 percent to $2.67 billion. For the third quarter, CSCO executives expect revenue to rise by 10 to 12 percent. The stock has gapped up more than six percent today, reversing back above its 10-day and 20-day moving averages, which the shares breached last week.

Hooked on Pfizer

Pfizer (NYSE:PFE) shares have rallied more than four percent today. Yesterday afternoon, officials at the pharmaceutical heavyweight said the firm is exploring strategic alternatives for its consumer-products division, which includes brand names such as Listerine and Benadryl. Suggested alternatives include a spin-off or a sale; PFE said it hopes "to unlock the value of the business for Pfizer shareholders at a time when market valuations are attractive for large, high-quality consumer businesses." According to MarketWatch, this division enjoyed 2005 sales of $3.88 billion worldwide, representing 7.6 percent of Pfizer's overall sales results. Wall Street experts hypothesize that the division could sell for between $8 billion and $11 billion. More details will be offered up by the company at its analyst meeting on Friday.

Big Mac Attack

McDonald's (NYSE:MCD) said this morning that its global same-store sales results climbed 5.7 percent in January, thanks to an improving breakfast crowd and premium menu offerings. In the U.S. same-store sales advanced by 9.7 percent, with extended hours and mild January weather contributing to the increase. Systemwide sales grew by 4.2 percent during the month, while European same-store sales, the lone soft spot, dropped 0.5 percent. Officials at the fast-food giant were quoted as saying they are "confident that 2006 will be another strong year for McDonald's."

Most-Active Options Update

At 1:38 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,800.4) was up half a percent. The S&P 500 Index (SPX - 1,259.63) was higher by 0.39 percent, while the Nasdaq Composite (COMP - 2,258.5) had gained 0.60 percent. At 1:38 p.m. Eastern time, 2,574,158 calls have changed hands compared to 1,900,420 puts, equaling a single-day put/call volume ratio of 0.73. The CBOE's equity put/call volume ratio weighed in at 0.71.

Pfizer

Pfizer (PFE) is in the news today as analysts and market watchers theorize on how the firm will make good on its pledge to explore different paths for its consumer-products division, as detailed above. The stock has gained more than five percent today, adding to a rally that has taken the stock nearly 30 percent higher since mid-December. Throughout this brief rally, the stock has closed just once below its team of 10-day and 20-day moving averages.

This move also takes the stock solidly above the 25 level, which the equity has been warring with of late. PFE edged above this threshold on January 26 and has not since registered a daily close below 25, despite intraday moves below this level. The 25 mark holds a special degree of significant for PFE as it represents the site of heaviest open interest in both the February and March options series. In fact, the February and March 25 calls boast a combined open interest of nearly 225,000. Now that this level has been overcome, it may prove hard to violate.

Moving to today's options trading, speculators have again focused their attention on the February 25 call (PFE BE). With the stock spiking up more than five percent, this could be the result of call buyers closing their positions at a profit, but I won't be so hasty. In midday action, almost 15,000 positions have crossed the tape. A number of small and mid-sized blocks have changed hands throughout the day, so maybe I should have gone with my first instinct, as these traders are likely collecting modest profits before we get too close to expiration Friday. There were also, however, two large blocks that were indicated as "spread" trades. This are likely matched with similar trades at the March 25 call strike (PFE CE), as halves of a calendar spread.

Turning back to the stock, one threshold the stock was unable to surmount is its descending 20-month moving average. The stock has failed to muster even the faintest hint of a move through this trendline since July 2004. PFE could be setting up for a battle of wills here between the 25 level underfoot and the 27 level, site of its 20-month trendline, perched immediately overhead.

In additional sentiment news, PFE is a favorite among the Wall Street community. According to recent information from Zacks, the stock has earned a whopping baker's dozen of "strong buy" ratings, 10 "holds," and nary a "sell" to be found. If the 20-month trendline proves a dangerous foe, some downgrades could be in the cards. What's not in the cards, however, is any semblance of a short-covering rally for PFE. Even after a 27-percent advance in shorted shares last month, the short-interest ratio stands at 1.0 day to cover.

So PFE has enjoyed a short-term uptrend, which has been powerful enough to overcome heavy calls at the 25 strike. But analysts are overly bullish, and a long-term technical trendline could prove troublesome. The stock's Schaeffer's Equity Scorecard of 5.0 is as neutral as they come; a resolution below 25 or above the 20-month would provide us with better clues for the stock's future.

Click the following link to see a daily, monthly, and open-interest configuration chart of PFE: http://www.schaeffersresearch.com/wire?ID=15251 .

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. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU12M&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 .