Schaeffer's Midday Options Update Features Pfizer, America West Holdings, Boeing, PanAmSat, and Exxon Mobil.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Pfizer (NYSE:PFE), America West Holdings (NYSE:AWA), Boeing (NYSE:BA), PanAmSat (NYSE:PA), and Exxon Mobil (NYSE:XOM). 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=PRMOU1M&PAGE=1 .

Options Update: Options Trading with Schaeffer's Gold

The day began with news that the Empire State index, a measure of manufacturing activity in the New York area, fell in May to record its weakest reading since April 2003. It checked in at -11.1, well below forecasts of 10.7, and market watchers immediately sensed downward pressure on the markets. Nevertheless, declining crude oil prices and a strong dollar injected some optimism, and the Dow was 10 points higher soon after the open.

On May 10, I reported that Qatar's oil minister, Abdullah Hamad al-Attiyah, warned that OPEC faces potential supply problems in the fourth quarter. Today the Dow Jones Newswires reveals that OPEC President Sheikh Ahmad Fahad Al-Ahmad Al-Sabah said "the market should be well supplied through the year." These are mixed messages, but the Street appears to favor the optimistic view. On the New York Mercantile Exchange, the price of crude oil futures declined below $48 per barrel, good news for consumer sentiment, especially sentiment toward the auto sector.

Treasury prices are rising, and the press continues to round up the usual suspects: weakening economy and fears of falling hedges being the most popular. But it's interesting to note that the wild rumors about hedge fund collapses have largely faded, restoring a welcome degree of calm. Nevertheless, the pain is real. Michael Mackenzie of the Dow Jones Newswires wrote today that "the main buyers of financial risk in recent years, credit hedge funds, are front and center, with tough times forecast for a sector that was already facing negative returns for the year-to-date in April and now faces the risk of hefty client redemptions in the months ahead."

Pfizer Impresses the Oncologists

The pharmaceutical industry has taken its share of knocks this year, so good news comes as a welcome remedy for weak price performance across the sector. Investors are studying the plethora of drug trial updates from the American Society of Clinical Oncology (ASCO). An experimental cancer treatment developed by Pfizer (NYSE:PFE) shows promise in patients with advanced cancer. By starving tumors of their blood supply this targeted therapy is finding favor. PFE stock has fared badly in recent months but I notice a clear uptrend since early February. Sentiment is optimistic, with a meager short-interest ratio of 1.26 days to cover offering little possibility of short-covering support. I see that just 0.44 percent of the float is sold short.

Energize

In 1984 PanAmSat (NYSE:PA) launched itself on a very special mission that would make space history. The firm was the first in the world to operate a privately owned satellite. The first customer was CNN in 1989 and, since that time, PA has provided satellite links for broadcasters, news gatherers and telecoms concerns, plus direct-to-home TV. The firm went through an IPO this year, trading for the first time on March 17. PA announced first-quarter earnings this morning of $1.1 million, or one cent per share, compared with a loss of $31.9 million, or seven cents per share, a year earlier. Revenue increased 1.6 percent to $208.8 million. At last check, the stock was down more than one percent, with price slipping below support at the 10-day moving average which has served it faithfully since April 11.

I notice on PA's website that the firm has "more than 23 satellites, 22,000 miles of video fiber, experienced professionals on six continents, four U.S. teleports and agreements for international teleport access around the world." That international teleport access sounds worth a try. I wonder what the tickets cost.

The Magic Airbus

As the airlines battle to survive, another punch up is going on in the background, between Boeing (NYSE:BA) and the European Airbus consortium. The Wall Street Journal reports that US Airways Group (UAIRQ) and America West Holdings (NYSE:AWA) may merge their airborne activities. The pair is in advanced negotiations with potential equity investors to raise as much as $400 million. Airbus stepped in with a $250 million loan, in return for an order for about 20 of the new A350 aircraft.

Most-Active Options Update

At 1:06 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,196.9) has gained 0.56 percent, followed by the S&P 500 Index (SPX - 1,160.09), up 0.52 percent. The Nasdaq Composite (COMP - 1,985.2) has gained 0.42 percent. At 1:05 p.m., 1,509,270 calls and 1,092,761 puts had crossed the tape, for a composite put/call ratio (across all six options exchanges) of 0.72 The CBOE put/call volume ratio for equity options stood at 0.64.

Exxon Mobil

Exxon Mobil (NYSE:XOM) is my featured stock today. It appears on our list of most-active options thanks to some trades that went off soon before midday. It appears a trader sold two blocks of 1,300 contracts of the January 65 call (XOM AM). At the same time, 2,600 of the January 70 calls were bought, which strongly suggests that this was a credit spread. In such a deal, a trader sells calls with a strike price of 65 and uses the proceeds to buy calls with a strike of 70, leaving some cash to spare (the credit in the 'credit spread'). Generally in this situation a trader would want the stock to close below 65 by the time January expiration rolls around, leaving the options to expire worthless. If it does, the trader gets to keep that cash difference I mentioned. The purchase of the January 70 calls is a hedge, to prevent losses in the event that the equity rises above 65.

XOM climbed steadily from mid-2002 but just lately this integrated-oil titan has run into problems, falling back to test support at the 10-month moving average. The weekly chart shows how the 10-week moving average turned from offering support to exerting resistance, and the 10-week and 20-week trendlines are poised for a bearish cross, a fact that calls for a degree of investor skepticism right now.

What of the sentiment? The feet on the Street are still running to XOM, with eight brokerages out of 18 rating the stock a (supposedly) rare "strong buy" on top of the three who feel "buy" is the best bet. No one is saying "sell," and the most negativity I can see is seven "holds." The short-interest ratio is just 1.7 days to cover, which is very small, and little more than half a percent of the stock's float is sold short. This is very far from pessimistic sentiment, strange for a stock that seems to be languishing.

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.

That second bullet point seems to apply here. Unless XOM turns into a high-octane stock again, there's a risk that the optimists could change their minds, pulling their cash out, and pulling the stock price down as they leave. Just look at the recent daily performance.

Click on the following link to see the Daily Chart of XOM since January 2005: http://www.schaeffersresearch.com/wire?ID=13199 .

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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 .