Schaeffer's Option Activity Watch Features: Burlington Resources, Carmax, and Sepracor.

CINCINNATI -- Today's Schaeffer's Option Activity Watch Features: Burlington Resources (NYSE:BR), Carmax (NYSE:KMX), and Sepracor (NASDAQ:SEPR). The Option Activity Watch is a report that takes a closer look at three equities appearing in our most unusual option activity report from the previous day. The Option Activity Watch is published on 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=PROAW1M&PAGE=1 .

Schaeffer's Option Activity Watch:

Burlington Resources

Burlington Resources (NYSE:BR) continues to be a stellar performer. Since tagging a near-term low of 44.72 on May 16, the shares have sharply rebounded, tacking on more than 40 percent as they rally along their 10-day and 20-day moving averages. In fact, the security has been in a long-term uptrend since July 2002, using the tandem support of its ascending 10-week and 20-week trendlines. What's more, the stock has been buoyed by its 10-month moving average since October 2002. During this time frame, BR has suffered only one monthly close below this trendline.

Despite the equity's impressive technical strength, investors remain skeptical of the oil and gas firm. In trading on Monday, investors flocked to the security's August 65 put, causing its open interest to swell from 243 to 4,537 contracts. Furthermore, the stock's Schaeffer's put/call open interest ratio (SOIR) rests at 1.17, indicating that puts outnumber calls in the front three months of options. This reading is currently higher than 71 percent of those taken during the past year. Meanwhile, short sellers are also attempting to call a top to the stock's rally. In July, short interest edged nearly three percent higher to strike a new annual high of 7.5 million shares.

Only Wall Street is leaning toward the bulls' camp. Zacks reports that 14 of the 26 analysts following the firm give it a "buy" or better. However, the 12 brokerage houses awarding BR a "hold" rating could easily boost the shares should they feel compelled to upgrade the shares.

Overall, the security has earned a Schaeffer's Equity Scorecard ranking of 7.0 out of 10, indicating that BR may still have some more room to run higher as the existing pessimism unwinds.

Looking ahead, the company is slated to skate into the earnings confessional on Friday, July 29. The Street is forecasting a profit of $1.22 per share, a 27-percent jump from its year-ago gain of 96 cents per share. Furthermore, BR has surpassed the consensus estimate in each of the past five quarters by an average of almost 12 percent. Another strong earnings report and/or outlook for the rest of the year could spur a round of upgrades from the remaining holdouts.

Click the following link to the Equity Scorecard and a Weekly Chart of BR since July 2002 with 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=13708 .

CarMax

CarMax (NYSE:KMX) is the nation's largest specialty used-car retailer, which buys, reconditions, and sells cars and light trucks at about 60 retail units in more than 15 states. The firm also operates seven new-car franchises. The security attracted some put activity on Monday, as traders flocked to the equity's September 25 strike. More than 2,000 new positions were added to this back-month option, pushing open interest up to 2,180 contracts. This surge in put open interest caused the security's SOIR to pop overnight from 0.68 to 0.92, which is in the 46th percentile.

Short sellers have also increased their interest in the firm. In July, the number of KMX shares sold short jumped by more than eight percent to 9.4 million - a new five-month high. Not only does this accumulation of bearish bets account for approximately 10 percent of the equity's float, but it is also five times to the stock's average daily trading volume. Wall Street is equally skeptical about the equity's prospects, with 13 of the 15 analysts following KMX rating it a "hold" or worse.

This wellspring of pessimism seems to be rather deserved by the shares when considering KMX's lackluster technical performance. After peaking in late February at 34.80, the security pulled back to test support at the 25 level. The stock is now attempting to bounce back, but is encountering staunch resistance at its declining 20-week moving average, which it has closed only one week above since the beginning of April. Furthermore, KMX is battling long-term resistance at its 20-month moving average.

Click the following link to the Weekly Chart of KMX since July 2004 with 20-Week Moving Average: http://www.schaeffersresearch.com/wire?ID=13708 .

Sepracor

Yahoo!Finance reports that Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development, and commercialization of pharmaceutical products. On Tuesday, July 19, the company released a solid second-quarter earnings report, narrowing its loss to seven cents per share, compared to the Street's view for a 68-cent loss.

Despite this seemingly solid report, the shares went on a 12-point bender, diving lower during the following five sessions. Today, it seems that some of this heavy selling has abated, and the shares are rebounding from support in the 52 area. However, the technical damage is already done, as SEPR's decline has pulled its 10-week and 20-week moving averages into a bearish cross. Furthermore, the security is poised to log its second monthly breach of its 10-month moving average since December 2002. Should this trendline begin exert resistance on the shares, it could be a slow grind lower for SEPR.

On the options front, yesterday saw some heavy put activity levied against SEPR, with 9,250 of these bearish contracts crossing the tape. The lion's share, some 3,200 options, crossed at the equity's September 50 put, bringing today's open interest at this strike to 3,141 contracts. Digging deeper, we find that the 50 strike ranks first among puts in the front three months of options, with more than 14,500 contracts calling this level home. For comparison, peak call open interest lies at the 60 strike, with more than 20,800 contracts in open interest. This collection of calls could pose a problem for the equity going forward. Despite yesterday's heavy call volume, the stock's SOIR actually fell overnight to 0.97 (in the 65th percentile) from yesterday's 1.01. However, the overall trend for SEPR's SOIR remains to the upside, as today's reading is far more bearish than the 0.56 (in the 15th percentile) reading taken on June 27.

The rest of the security's sentiment indicators are skewed toward the negative side as well. Short interest increased by 12 percent during June and now accounts for more than 10 percent of the stock's total float. Furthermore, it would take a hefty 6.19 days to cover the 10.2 million SEPR shares sold short, providing a nice wellspring of short-covering fuel - that is if the stock can ever manage to rebound and take full advantage of it.

Finally, Wall Street is rather split on the shares. According to Zacks, SEPR has garnered seven "buys," seven "holds," and one "sell" rating. With no real technical prowess to send the bears running to cover their bets, and plenty of options-related resistance situated overhead, SEPR has earned a rather unimpressive Schaeffer's Equity Scorecard rating of 3.5 out of 10.

Click the following link to the Monthly Chart of SEPR since December 2002 with 10-Month Moving Average: http://www.schaeffersresearch.com/wire?ID=13708 .

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About Schaeffer's Investment Research (www.SchaeffersResearch.com)

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is 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 .