Schaeffer's Midday Options Update Features Washington Mutual, Providian Financial, IBM, Apple Computer, and Andrx.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Washington Mutual (NYSE:WM), Providian Financial (NYSE:PVN), IBM (NYSE:IBM), Apple Computer (NASDAQ:AAPL), and Andrx (NASDAQ:ADRX). 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=PRMOU1M&PAGE=1 .

Options Update: Apple Plus Intel Equals "Mactel"?

The Dow Jones Industrial Average showed gains on the open, but started to fall into negative territory after 10:30 a.m. eastern time, recovering later but still short of the key 10,500 level. After two heady days north of the 1,200 level, the S&P 500 Index has slipped back again, and it will be interesting to see if the market tests this as a resistance level. Those four-character tickers on the Nasdaq are showing slight gains, and the Nasdaq Composite Index is securely above the key 2,000 level that it fought through on May 17.

Mutual Agreement

It's Merger Monday, and the big news is that Washington Mutual (NYSE:WM) has agreed to buy credit-card-issuer Providian Financial (NYSE:PVN) for $6.45 billion in cash and stock, marking a premium of more than four-percent over Friday's closing price on a per-share basis. WM stock gapped down this morning on the news, and PVN fell steadily during the morning. For more on PVN, check out today's edition of Street Chatter.

A Real Deal

Also, ProLogis (PLD) snatched up Catellus Development (CDX) for $4.9 billion in cash, stock, and assumed debt (a more than 16-percent premium to CDX's Friday' close). When the deal closes, it will create the U.S.'s largest warehouse and distribution property Real Estate Investment Trust (REIT). PLD is based in Denver, and will offer 65 percent of the purchase as shares, and the balance in cash, a hefty $1.255 billion. CDX is based in San Francisco, and has a portfolio of properties in Southern California, a high-demand area.

Mactel vs Wintel - a Buyers Guide

At Apple Computer's (NASDAQ:AAPL) annual conference in San Francisco today, Steve Jobs confessed to technological promiscuity. Having switched from Motorola's 68000 family of chips to IBM's (NYSE:IBM) jointly developed PowerPC architecture circa 1994, AAPL is now snuggling up with Intel (INTC) as the new supplier of Mac microprocessor chips; a move that it has stridently avoided for more than two decades. This move has some fascinating implications for industry watchers, and there's plenty of analysis and speculation just a Google-click away. But what should investors think? INTC will love the decision, which gives it the lion's share of the market for CPU chips for most home and office users on the planet. One of our traders here, my esteemed colleague, Rick Pendergraft, observed: "I find it ironic that investors have become more pessimistic towards INTC and more optimistic toward IBM over the last few months." The Schaeffer's put/call open interest ratio (SOIR) for INTC rose from 0.57 in late April to hit 0.83 recently. The ratio currently stands at 0.73 which is more pessimistic than 92 percent of the readings for the past year. What's more, the short interest on INTC jumped by 18 percent during the most recent reporting period. So, we see an excellent configuration for contrarians: strong performance amid pessimistic sentiment, telling us the path of least resistance is to the upside if good news were to come along. And, of course, good news just came along for INTC.

Big Blue Loses a Customer

Of course, IBM won't like this turn of events at all. The stock was already in 'decline' mode, so no one is surprised that IBM brings red to dealers' screens today. But, sentiment toward IBM is optimistic, and the stock has seen its SOIR drop from 0.89 in early April to a recent low of 0.52. Currently the SOIR stands at 0.56, which is more optimistic than 95 percent of the readings in the past year. Short interest on IBM dropped by 35 percent from the April report to the May report. While optimism toward a strong stock is right and proper, optimism toward a declining stock rings alarm bells. If bad news were to come along and cause those optimists to bail out, the impact on the stock price is easy to imagine. And, at the risk of laboring the point, bad news just came along for IBM.

Most-Active Options Update

At 2:00 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,461.3) was flat, while the S&P 500 Index (SPX - 1196.17) gained 0.01 percent. The tech-heavy Nasdaq Composite (COMP - 2,075.6) has added 0.20 percent. At 2:00 p.m., 1,451,435 calls and 1,120,463 puts had changed hands, for a composite put/call ratio (across all six options exchanges) of 0.77. The CBOE put/call volume ratio for equity options stood at 0.62.

Andrx

Andrx (NASDAQ:ADRX) is our featured stock today, with the Florida pharma seeing some heavy call activity at the July 20 strike. The stock has been in a downtrend since March 10, but I'm seeing some persistent optimism, with makes the stock worthy of further investigation. The Schaeffer's put/call open interest ratio (SOIR) for ADRX is 0.40, indicating that the options players strongly favor calls over puts. Additionally, this ratio lies in the 14th percentile, telling us that sentiment during the past year has been more pessimistic than this 86 percent of the time. There is some short interest, but it amounts to a upwardly moderate 4.83 percent of the float.

The analyst community is skewed to the "buy" side. According to Zacks, two rare "strong buy" ratings and one "buy" are stacked against a lone "strong sell." The remaining eight ratings are all "hold," leaving plenty of room for changes of heart.

Remember, as contrarians we look for one of the following situations:

--Fundamental and technical strength amid pessimistic sentiment. This is a signal that upside movement could be on the way if any significant good news comes along.

--Fundamental and technical weakness amid optimistic sentiment. This is a signal that downside movement could be on the way if any significant bad news comes along.

That second bullet point seems to fit ADRX reasonably well. The mix of optimism and complacency amid a long-term downtrend has earned ADRX a Schaeffer's Equity Scorecard reading of 3.0 out of 10.0, indicating that the path of least resistance currently lies to the downside. Just remember those July 20 calls. There are 5,928 of them, and it seems that most could be initiations of new positions. The 20 level already seems to be offering hints of resistance, and those calls will do nothing to ease that situation. Watch for a close below 20 as reinforcement of my bearish view towards ADRX.

For more sentiment and technical details related to other equities, check out the various Schaeffer's Equity Scorecard tools on our Schaeffer's Gold section of the website.

Click on the following link to see the Schaeffer's Equity Scorecard and Daily Chart of ADRX since March 2005 with 10-Day and 20-Day Moving Averages: http://www.schaeffersresearch.com/wire?ID=13339 .

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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 .