Schaeffer's Midday Options Update Features Williams Companies and Pfizer.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Williams Companies (NYSE:WMB) 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.

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Options Update: Pfizer Could be Good Medicine

It appears that we may be in for a bit of a running of the bulls on this expiration Friday. The optimistic crew is drawing strength from the latest round of Consumer Price Index (CPI) data from the Labor Department. In August, the CPI increased 0.2 percent following July's gain of 0.4 percent. The core CPI, which excludes food and energy, also increased 0.2 percent. According to MarketWatch, analysts expected the CPI to rise by 0.3 percent and the core CPI to advance 0.2 percent.

In other news, the Federal Reserve announced that industrial output slumped by 0.1 percent in August, on the heels of an unrevised gain of 0.4 percent in July. The drop was attributed to moderating temperatures, which led to a drop in the output of utilities. Capacity utilization declined to 82.4 percent in August from 82.7 percent in July. The New York Federal Reserve Bank also got in on the data game, releasing its Empire State Manufacturing index for September. The index rose to 13.8 in September, matching expectations. Finally, the University of Michigan released its preliminary September consumer sentiment index, showing a preliminary reading of 84.4. The reading taken in late August came in at 82.0.

Most-Active Options Update

At 1:40 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 11,587.1) is currently up 0.52 percent and the S&P 500 Index (SPX - 1,321.68) has added 0.41. Meanwhile, the Nasdaq Composite (COMP - 2,236.0) has added 0.33 percent. At 1:41 p.m. Eastern Time, 3,832,466 calls have changed hands compared to 2,633,968 puts, equaling a single-day put/call volume ratio of 0.68. The CBOE's equity put/call volume ratio stands at 0.70, while the ISE's ratio comes in at 0.75.

Option Activity Follow-Up

In this column yesterday, Jocelynn speculated about the ability of Williams (NYSE:WMB) to hold onto the support of its 20-month moving average, despite resistance at its daily and weekly counterparts. It seems that the stock has found some measure of support at the 22.50 level for a second straight day. The last time WMB finished a day below this level was in June, and it appears ready to continue its supportive role. Keep an eye on this level throughout the day, a break of its support wouldn't be catastrophic, as the 21.50 level and 20-month moving average await to lend support.

Pfizer

Last Friday, Ryan Detrick took a look at pharmaceutical firm, Pfizer (NYSE:PFE). In his analysis, Ryan noted that "pharmaceuticals have been a strong group during the past few months, as money continues to move into more defensive names." Reading that quote made me look up a weekly chart of the AMEX Pharmaceutical HOLDRS Trust (PPH) just to see its recent performance. Currently, PPH is poised to finish this week at its highest close, above the 77 level. The last time PPH finished above 77 was July 2004.

Turning to PFE, today's heavy put action on its October 27.50 put (PFEVY) has landed it on our notably active options list. Scanning through the option activity, I found three large contracts. The first was 1,375 contracts that went off at the ask and was marked "spread." The second large block was 4,125 contracts seconds later at the ask price. Finally, a block of 2,500 contracts crossed the line at 11:38 a.m. Eastern time at the ask price. It certainly seems that some options players aren't buying into a PFE rally.

Looking at this Dow component's technical performance, I can certainly see the reasoning behind these trades. Two weeks ago, the equity finished above the 27.50 level for the first time since July 2005, and said level seems to enjoy its new role as support rather than resistance. Strengthening this potential support is that 27.50 is the site of peak put open interest in the October and December series (remember that today is expiration Friday).

There is a hint of further technical support on a monthly chart for PFE. The drugmaker's 10-month and 20-month moving averages are on the cusp of a bullish crossover. If this move comes to pass, it could signal a continued uptrend.

Okay, PFE is a member of the almighty Dow (which my colleague Joseph Hargett takes a technical look at today in a Schaeffer's Plus article); therefore, I would expect heavy optimism from the Street. However, one look at PFE's sentiment indicators shows that I may be wrong (I know, hard to believe). Let's deal with analysts first. According to Zacks 11 of the 18 analysts covering PFE rate it a "buy" or better. Yes, there is plenty of opportunity for this gang of 11 to change its mind and issue downgrades, but the chance for upgrades is nearly as great.

I am surprised at the options players' disdain for PFE. The firm's Schaeffer's put/call open interest ratio (SOIR) of 0.89 is higher than 94 percent of those taken during the past 52 weeks. If this group has a change of heart and becomes bullish on PFE, considerable buying pressure could be applied to push the stock higher.

One mild concern is short sellers. In August, short interest dropped more than 18 percent. As a result, less than one percent of PFE's float is sold short, and it would take roughly one day to buy back these shorted shares. This leaves little (to nothing) in the way of potential short-covering support to help boost the shares.

Looking at this sentiment backdrop, my first guess would be that PFE's Schaeffer's Equity Scorecard rating would be roughly 6.0, again I am wrong. The pharmaceutical firm boasts a Scorecard rating of 8.0 out of a possible 10, indicating that the shares should receive a push from sideline money that is pulled into the investing game.

Click here to see a Weekly Chart for PFE since July 2005: http://www.schaeffersresearch.com/wire?ID=17345 .

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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 .