Schaeffer's Midday Options Update Features UnitedHealth Group, eBay, Spinnaker Exploration, Carnival, and Nike.

CINCINNATI -- Today's Schaeffer's Midday Options Update features UnitedHealth Group (NYSE:UNH), eBay (NASDAQ:EBAY), Spinnaker Exploration (NYSE:SKE), Carnival (NYSE:CCL), and Nike (NYSE:NKE). 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.

Options Update: Calls Active on UnitedHealth Group

Stocks dipped sharply lower in trading this afternoon on higher oil prices and anxiety ahead of tomorrow's Federal Open Market Committee (FOMC) meeting. According to a Dow Jones Newswires/CNBC survey Monday, 19 of the 22 primary dealers (banks that deal directly with the Fed) expect the Fed to lift the overnight target rate to 3.75 percent from 3.50 percent. This increase would mark the 11th increase since June 2004. However, there has been a very vocal minority expressing a belief that the Fed will pause in its string of rate hikes as the economy continues to weigh the impact of Hurricane Katrina.

Meanwhile, October crude oil futures have surged $3.35 to $66.35 a barrel on fresh fears of yet another hurricane plowing through the battered Gulf of Mexico. According to the National Hurricane Center, "All indications are that (Tropical Storm) Rita will become a major hurricane over the Gulf of Mexico.

Nike Sprints Past Street Forecast

Nike (NYSE:NKE) recorded a first-quarter profit that easily outstripped the Street estimate due to strong worldwide growth. The firm posted earnings of $432.3 million, or $1.61 per share, compared to its year-ago gain of $1.21 per share and the Street forecast of $1.42 per share. Sales for the three-month period rose eight percent to $3.86 billion, besting the consensus estimate of $3.82 billion.

Carnival Sails Past Expectations

Carnival (NYSE:CCL) posted third-quarter earnings of $1.15 billion, or $1.36 per share, edging out the Street estimate by a penny. Sales for the quarter rose to $3.61 billion. However, for the fourth quarter, CCL warned that Hurricane Katrina forced it to cancel one voyage, shorten two others, and redirect two ships to other homeports. The impact also led to other disruptions and related costs. As a result, the firm is now forecasting earnings per share of 39 - 41 cents compared to the Street estimate of 42 cents per share.

Monday Merger Madness

Spinnaker Exploration (NYSE:SKE) announced that it has agreed to be acquired by affiliates of Norsk Hydro (NHY) for $2.6 billion, or $65.50 per share in cash. The purchase is expected to be completed in the fourth quarter of 2005. At last check, SKE was up more than 32 percent while NHY was hovering close to breakeven.

eBay Slips on Downgrade

Shares of eBay (NASDAQ:EBAY) tumbled more than one percent lower this afternoon after one brokerage firm slashed its rating of the online auctioneer from "outperform" to "peer perform." The brokerage firm stated that "We think many investors have looked at 2005 for eBay as a 'year of investment,' hurting near term margins and free cash flow but benefiting margins in 2006 and beyond. After returning from our trip to China, we think that eBay will need to continue to invest in 2006, potentially pushing off any rebound in near-term margins."

Most-Active Options Update

At 1:34 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,560.5) has dropped 0.77 percent. The S&P 500 Index (SPX - 1,231.18) is down 0.54 percent, and the Nasdaq Composite (COMP - 2,145.6) has dropped 0.69 percent. At 1:35 p.m. Eastern time, 2,492,145 calls have changed hands compared to 1,712,942 puts, equaling a single-day put/call volume ratio of 0.68. The CBOE's equity put/call volume ratio weighed in at 0.61.

UnitedHealth Group

UnitedHealth Group (NYSE:UNH) is seeing some heavy call trading this afternoon. The equity's October 55 call has witnessed more than 9,800 contracts cross the tape. A block of 5,584 contracts changed hands at a price of 1.00 at 10:47 a.m. Eastern time. However, this trade fell between the bid and ask prices, making it difficult to determine if the contracts were bought or sold. Also a total of 2,393 contacts changed hands at a bid price of 0.85 at 1:05 p.m. Eastern time, indicating that these contracts were most likely sold. With open interest resting at 13,097 contracts, we shall have to wait until tomorrow to see if this surge in volume translates into new positions.

Optimism continues to blanket the security. After September options expired last week, the stock's Schaeffer's put/call open interest ratio (SOIR) dropped from 0.74 to its current reading of 0.25, tagging a new annual low. Wall Street is also smitten with the shares, as 12 of the 15 analysts following the firm rate it a "buy" or better.

On the other hand, short sellers continue has loaded up on bearish bets. In August, the number of UNH shares sold short surged 33 percent to 23 million, notching a nine-month high. Yet, at the stock's average daily trading volume, it would take only three days to cover these bearish bets. Such a paltry accumulation of shorted shares offers little in the way of potential covering support.

Technically speaking, this optimism comes as no surprise. The shares have rallied along their 10-week and 20-week moving averages since mid-August 2004. In addition, the stock has not closed below the steadfast support of its 10-month and 20-month trendlines since March 2000.

However, there is one short-term concern. The equity is currently running into resistance in the 54-55 region. This area has troubled the shares since the beginning of July. Furthermore, the 55 strike marks the site of peak call open interest in the September series, which could add a layer of options-related resistance to this region. A rejection at the 55 level could shake loose some of the bulls, sending the shares sharply lower.

Click on the following link to access a Weekly Chart of UNH since June 2004 with 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=14159 .

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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 .