Schaeffer's Option Activity Watch Features OmniVision Technologies, Motorola, and United States Steel.

CINCINNATI -- Today's Schaeffer's Option Activity Watch Features OmniVision Technologies (NASDAQ:OVTI), Motorola (NYSE:MOT), and United States Steel (NYSE:X). 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:

OmniVision Technologies

OmniVision Technologies (NASDAQ:OVTI) blipped onto my screen this morning when I noticed that 11,494 contracts of the August 17.5 put (UCM TW) crossed the tape yesterday. Peak front-month open interest resides at the July 17.5 put, but July options are due to expire at the end of this week, and August will be the front month when the market opens on Monday. With 10,575 contracts sitting at the August 17.5 put, this is clearly the place to look for action.

I last wrote about OVTI in June ahead of earnings, and I did not feel confident toward the stock then. A rumor that the earnings report might miss expectations was circulating, and Wall Street has been treating disappointments with unusual savagery. The rumor turned out to be true, and the firm reported fourth-quarter earnings of 30 cents per share, 1 cent shy of estimates. The stock responded by falling for a couple of days, but it has mounted an encouraging recovery since.

Technically, OVTI is interesting. Its 10-day and 20-day moving averages are heading for a bullish cross, and the stock has regained support of its 20-day trendline. I'm looking for further signs of support at 14, but the island reversal that began on May 18 and ended on June 20 draws the eye toward 15, and that looks to be the next important hurdle. If the equity fails to establish 15 as a support level, it might set in as resistance.

The analyst picture has become less positive. From Zacks I see that a "strong buy" recommendation has disappeared since last month, and a new "sell" rating has appeared. This shows clear signs of waning optimism. On June 24, Piper Jaffray moved OVTI's price target down to $18 from $26.

The short sellers remain pessimistic. The short interest on OVTI amounts to 33.93 percent of the stock's float, and it would take 10.15 days to cover all those bets at the stock's current average trading volume. That makes a short-covering rally a strong possibility if good news comes along.

Options players are pessimistic, too. The Schaeffer's put/call open interest ratio (SOIR) for OVTI is 1.09, and this is the most pessimistic SOIR the stock has generated for a year. Yesterday it stood at 0.78, in the 56th percentile, so those puts that traded yesterday made a very big difference.

On our Schaeffer's Equity Scorecard the stock earns 6.0 out of 10.0, indicating that the path of least resistance is now to the upside. A break above 15 would make OVTI's picture more appealing, and I would watch for that before recommending any kind of position on this stock. I think the 80-day moving average is worth watching, too. That's swooping down below 15, and the next few days will show how much attention the Street is paying.

Click the following link to see a Daily Chart of OVTI since January 2005 with 10-Day and 20-Day Moving Averages: http://www.schaeffersresearch.com/wire?ID=13616 .

Motorola

Motorola (NYSE:MOT) caught my eye when the August 20 call (MOT HD) saw volume of 18,664 cross the tape yesterday, with open interest on that contract standing at 30,607 today, making this the site of peak open interest for August. Peak front-month open interest lies at the July 19 call (MOT GT).

I last wrote about MOT in June, and noted that the stock has been in recovery since 2003. I said that resistance at 19 had capped the stock since last April, and that MOT seemed to be taking another run at 19, pulling the 10-week and 20-week moving averages into a bullish cross. Well, the run might be proving successful. Just yesterday, Piper Jaffray shifted MOT's price target to $21 from $18, and MOT opened new research and development centers in India and Taiwan. The news was good enough to push the price sharply through the 19 level and keep it there until the bell rang. I'm seeing strong support from the daily and weekly moving averages, and the stock was up 0.83 percent today, at last check.

Of the 25 analysts who rate the stock. Zacks lists six "hold" ratings, five "buys," and 14 supposedly rare "strong buys." This leaves plenty of room for downgrades, a possibility that makes me wary. To support this level of optimism, the stock must continue to do very well indeed.

Short interest is just 1.72 days to cover, so short-covering action is unlikely. Short interest increased by 24.39 percent last month, a sign that the raging optimism does have limits.

The stock's SOIR is 0.45, indicating that calls are more than twice as numerous as puts in the front three months of options. This is more optimistic than 97 percent of the readings taken over the past year.

On our Schaeffer's Equity Scorecard the stock earns 4.0 out of 10.0, indicating that the path of least resistance, by a small margin, is to the downside. 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.

If the stock stumbles, that second bullet point could account for some price falls. But the stock hasn't stumbled yet, and perhaps it won't. Watch what happens when we hit 20. I think that's going to give the best clue. Just don't forget that there is open interest of more than 30,000 August 20 calls.

Click the following link to see a Weekly Chart of MOT since January 2003 with 10-Week and 20-Week moving averages: http://www.schaeffersresearch.com/wire?ID=13616 .

United States Steel

Our final stock today is United States Steel (NYSE:X), which Hoover's describes as "the nation's number-two integrated steelmaker." The stock saw some heavy activity in the options pits yesterday, with 13,461 of the August 40 puts (X TH) crossing the tape, to bring open interest today to 16,134 contracts at that strike.

X has seen some recent declines, but it bounced back in late June. It has broken above the 10-day and 20-day moving averages, and appears to be pulling them toward a bullish cross.

Of 13 analysts who rate the stock, Zacks lists five "strong buy" ratings, but eight ratings of "hold" or worse, so this stock could yet benefit from upgrades. Equities players have pushed the short-interest ratio to 2.73 days to cover. The stock's SOIR is 0.78, and this lies roughly in the middle of the range of readings taken over the past year. So what can we say?

I think X has an interesting upside. The stock showed some impressive gains from April 2003 to March 2005, but then fell below its 50-percent retracement level last month. This is a key area that traders examine for signs of strength or weakness. X is bouncing back and threatening the 10-week moving average. On June 24, we recommended a call position on X to subscribers of our Schaeffer's PowerFlex Series. So far that trade is showing a gain in excess of 30 percent.

Click the following link to see a Weekly Chart of X since January 2003 with 10-Week Moving Average: http://www.schaeffersresearch.com/wire?ID=13616 .

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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 .