Schaeffer's Midday Options Update Features Cisco Systems, Lucent Technologies, Schering-Plough, Michaels Stores, and General Motors.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Cisco Systems (NASDAQ:CSCO), Lucent Technologies (NYSE:LU), Schering-Plough (NYSE:SGP), Michaels Stores (NYSE:MIK), and General Motors (NYSE:GM). 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=PRMOU12M&PAGE=1 .

Options Update: Trading Puts on Cisco Systems

There is a fair amount of indecision on the Street today, as the Dow Jones Industrial Average and the S&P 500 Index have both turned negative on the session, while the Nasdaq Composite is treading water above breakeven. Driving some of the volatility in the market today is the rising trepidation regarding Federal Reserve Chairman Ben Bernanke's speech later today. A quote from Michael Malone, a trading analyst at SG Cowen, found on MarketWatch does a pretty good job of summing up today's rather stagnant traffic on the Street. According to Malone, "The market has run out of steam here at least in the short term... The S&P has run into resistance, and people are not going to do too much until they hear what Bernanke has to say."

In economic news, the U.S. index of leading economic indicators fell 0.2 percent in February after rising for four months in a row. According to the Conference Board, five of the 10 indicators declined in February, starting with vendor performance and consumer expectations. The biggest gainers were core capital equipment orders and money supply. The leading index increased a revised 0.5 percent in January, compared with the 1.1-percent increase originally reported.

Barron's Bearish on Lucent

Lucent Technologies (NYSE:LU) has fallen nearly four percent so far today after Barron's panned the shares in an article over the weekend. According to the financial magazine, LU faces "long odds in its comeback effort," due partly to a shrinking pool of customers and an unexpected poor reception by consumers to the third-generation high-speed wireless data services. LU is a main supplier of the so-called 3G technology.

Ploughing Ahead

Meanwhile, Schering-Plough (NYSE:SGP) is up nearly four percent after Bank of America upgraded the shares from "sell" to "neutral." The analysts noted that sales of the drugmaker's cholesterol drug Vytorin have been exceeding expectations. However, the analysts also opined that the company was "overly reliant" on Vytorin sales for its financial recovery. Vytorin is co-marketed with Merck (MRK).

Michaels Stores (NYSE:MIK) announced that its board is mulling the possibilities of strategic alternatives to boost shareholder value, including a possible sale of the company. "With a rapidly evolving retail market, we are focused on all opportunities to enhance the strength of the Michaels business, attract new customers and more effectively respond to -- and shape -- their changing arts and crafts interests," said Chairman Charles Wyly. The company also stated that CEO Michael Roleau is retiring.

General Motors (NYSE:GM) has jumped approximately 1.5 percent on the session after its board reportedly asked top management to explain newly uncovered accounting problems that forced the company to delay its annual report. Meanwhile, GM, Delphi, and the United Auto Workers union are reportedly continuing talks on a possible labor deal.

Most-Active Options Update

At 1:38 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 11,274.0) is down 0.08 percent. The S&P 500 Index (SPX - 1,304.91) has dropped 0.19 percent, and the Nasdaq Composite (COMP - 2,310.7) has added 0.18 percent. At 1:39 p.m. Eastern time, 2,615,905 calls have changed hands compared to 1,739,689 puts, equaling a single-day put/call volume ratio of 0.66. The CBOE's equity put/call volume ratio weighed in at 0.62.

Cisco Systems

Networking bellwether Cisco Systems (NASDAQ:CSCO) has found its way back onto the most-active options list today, as traders seem to have taken a keen interest in the equity's April 20 puts. Currently, more than 30,600 of these bearishly oriented contracts lie in wait at the 20 level in the April series, and today's activity of roughly 6,600 contracts is seemingly just a drop in the bucket. However, the 20 strike is currently vying with the 17.50 strike for the title of peak put open interest for the front three months of options. As I'll explain later, the potential for options-related support at the 20 level could prove to be rather important for CSCO.

On the bullish side of the put/call coin, peak call open interest for the front three months resides at the 20 level, with the 22.50 level rising quickly to contest this title. Knowing where peak call and put open interest for CSCO is important at this juncture, because the shares are currently trading just above the 20 level. With building call open interest above the security, CSCO could use all the support it can muster to hold its own. However, if the stock manages to break below the 20 level, those calls already holding steady at this strike could pose quite a road block for the equity. This potential for CSCO to breach the 20 level is why potential options-related at this strike is so important for the shares.

Technically speaking, CSCO is performing admirably lately. The security has steadily rallied higher along the support of its 10-day and 20-day moving averages since the beginning of the year - barring a few slips here and there. However, I can see quite a bit of risk for the shares right now when looking at a monthly chart. The shares are not in danger of breaching their monthly trendlines, but they are fast approaching long-term resistance at the 22 level. In fact, barring a span from November 2004 through June 2004, the stock has not closed a month above this region since early 2001. The question now becomes, "Can CSCO put in a repeat performance of those glory months in 2004, or will the shares succumb once again to overhead resistance at the 22 level?" Let's take a look at the sentiment to see if we can garner a direction.

Despite today's put activity in the options pits, calls have been the trading vehicle of choice for the speculative options trader lately. Since February 17, CSCO's Schaeffer's put/call open interest ratio (SOIR) has dipped dramatically from its reading of 0.56 in the 73rd percentile to today's perch at 0.48 in the 45th percentile. This rising optimism is to be expected on a stock with a technical background like CSCO, but it gives me pause with such resistance lingering overhead.

Checking in on short interest, I find another reason to be concerned with a long position on CSCO. During February, the number of CSCO shares sold short declined by 40 percent, tagging a new four-year low in the process. Furthermore, it would take less than one day to buy back the 28.7 million CSCO shares sold short. Basically, this sentiment reading indicates that should the shares begin to fall, there is little in the way of short-covering support to help buoy them higher.

Finally, Wall Street remains enamored with this large-cap networker. According to Zacks, 20 of the 26 analysts covering CSCO rate the shares a "buy" or better. With the odds stacked against the shares, and overhead resistance set to rear its ugly head, investors may want to steer clear of CSCO for the time being.

Monthly Chart of Cisco Systems since March 2001 with 10-month and 20-month moving averages: http://www.schaeffersresearch.com/wire?ID=15583 .

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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 .