Schaeffer's Midday Options Update Features Morgan Stanley, FedEx, Corning, Starbucks, and Cypress Semiconductor.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Morgan Stanley (NYSE:MWD), FedEx (NYSE:FDX), Corning (NYSE:GLW), Starbucks (NASDAQ:SBUX), and Cypress Semiconductor (NYSE:CY). 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.

Options Update: Calls Active on Cypress Semiconductor

Hurricane Rita is weighing on the minds of traders this afternoon. The latest update from the National Hurricane Center reports that Rita now has winds estimated at 140 miles per hour. Some additional strengthening is forecast for the next 24 hours and Rita could reach category 5 intensity in the Central Gulf of Mexico.

The Gulf houses a heavy concentration of oil production and refining facilities. As a result, crude oil futures are scrambling higher. At last check, the November contract is up 1.74 percent at $67.35 a barrel, down from its early-morning high of $68.27 a barrel. Not helping matters is news from the Energy Department that crude supplies for the week of September 16 fell by 300,000 barrels to total 308.1 million. During the past three weeks, crude oil inventories have dropped 14.5 million barrels. Meanwhile, gasoline supplies rose by 3.4 million barrels to 195.4 million and distillate inventories are up 800,000 barrels at 134.1 million barrels. The American Petroleum Institute confirmed the Energy Department's report, posting a 158,000-barrel drop in crude levels for the week. The group also stated that motor gasoline inventories rose 2.1 million barrels and distillate supplies rose 3.2 million barrels.

Swelling Debt

In economic news, U.S. non-financial debt grew at a 7.3 percent annual rate in the second quarter. The Federal Reserve remarked that this is the slowest growth in a year. Households and businesses increased their borrowing, while federal borrowing was nearly flat. Household debt increased at a 9.9-percent rate, with mortgage debt jumping 11.5 percent. Business borrowing increased 8.4 percent, the fastest in five years.

Earnings Roll In

Morgan Stanley (NYSE:MWD) reported third-quarter earnings of $144 million, or 13 cents per share, compared to 76 cents per share for the same period a year ago. The results include an after-tax charge of $1 billion to reflect the planned sale of the company's aircraft financing business. From continuing operations, Morgan Stanley earned $1.17 billion, or $1.09 per share, beating the consensus estimate by four cents per share.

FedEx (NYSE:FDX) posted first-quarter earnings of $339 million, or $1.10 per share, edging past its year-ago profit by two pennies. Revenue rose 10 percent to $7.71 billion. Excluding charges, earnings came in at $1.25 per share, thumping the Street estimate of $1.17 per share. The firm expects second-quarter income of $1.30 to $1.45 per share and lifted its 2006 outlook to $5.25 to $5.50 a share.

Looking ahead, Corning (NYSE:GLW) reaffirmed third-quarter earnings expectations of 20-22 cents per share (excluding special items), with sales in the $1.14 billion to $1.19 billion range. Analysts are currently calling for a gain of 21 cents per share before special items. The firm warned that it may separately impair its investment in Samsung Corning, which will be about $200 million to $250 million after charges. The company also will record a $30 million restructuring charge in the third quarter for its telecommunications segment. The company projected that its telecommunications segment's revenues will be flat to down five percent. In other segments, GLW reported that it's optical fiber business' third-quarter volume will be up 15 - 20 percent sequentially on stronger North American demand.

Time to Split

In other news, Starbucks (NASDAQ:SBUX) announced that its board declared a two-for-one stock split. This split marks the company's fifth its initial public offering in 1992. The company's shares will trade on a split-adjusted basis starting October 24. On a split-adjusted basis, the company's previously announced earnings-per-share targets equate to 15 cents for the fourth quarter and 60 cents for 2005. The 2006 split-adjusted earnings-per-share target range is 72-74 cents.

Most-Active Options Update

At 1:20 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,420.0) has dropped 0.57 percent. The S&P 500 Index (SPX - 1,215.11) is down 0.51 percent, and the Nasdaq Composite (COMP - 2,117.5) has dropped 0.65 percent. At 1:21 p.m. Eastern time, 2,213,948 calls have changed hands compared to 1,939,250 puts, equaling a single-day put/call volume ratio of 0.87. The CBOE's equity put/call volume ratio weighed in at 1.00.

Cypress Semiconductor

The chips sector is seeing a little action today after one brokerage firm changed its rating on a pair of heavy hitters. Analyst Joseph Osha of Merrill Lynch upgraded Intel (INTC) from "neutral" to "buy," citing valuation. While Osha is still concerned about excess manufacturing capacity and competitive pressure from Advanced Micro Devices (AMD), he noted that the stock has fallen about 15 percent since the middle of July compared to a virtually flat PHLX Semiconductor Index (SOX). Speaking of AMD, Osha slapped the firm with a downgrade from "buy" to "neutral."

Escaping today's brokerage rating high-jinks is Cypress Semiconductor (NYSE:CY). However, the stock has captured someone's attention because it is seeing some heavy call trading. The equity's December 17.50 strike has had more than 2,700 contracts cross the tape on open interest of 20,978. A block of 2,500 calls changed hands at an ask price of 0.45 at roughly 11:44 a.m. Eastern time today. Meanwhile, the stock's January 2006 17.50 call has seen more than 10,700 contract trade on open interest of 9,546. A block of 4,500 contracts traded at a bid price of 0.55 at roughly 12:30 p.m. Eastern time. Furthermore, several large blocks totaling more than 5,000 contracts changed hands at 12:23 at 0.55, which happened to be the ask price at the time.

Overall, calls have been a growing favorite among traders during the past month. The stock's Schaeffer's put/call open interest ratio has dropped from its July 18 peak of 1.44 to its current perch of 0.64 in the 53rd percentile. This steady decrease indicates that speculators have added calls at a faster pace than puts in the front three months of options.

However, not everyone is quite so optimistic. In August, the number of CY shares sold short jumped by six percent to 14.7 million shares, or 11 percent of the stock's float. With a short-interest ratio of only 3.98 days to cover, the equity is likely to benefit from only light short-covering support. Wall Street hasn't completely jumped on the security's bandwagon. According to Zacks, eight of the 13 analysts following the firm rate it a "hold," leaving room for additional upgrades.

Technically speaking, the shares have broken below key support at their 10-day and 20-day moving averages, which are currently poised to form a bearish cross. These short-term trendlines had supported the equity from early July through mid-September. From a longer-term perspective, the stock has pulled back to test support at its 20-week moving average.

Click on the following link to access a Daily Chart of CY since June 2005 with 10-Day and 20-Day Moving Averages: http://www.schaeffersresearch.com/wire?ID=14177 .

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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 .