Schaeffer's Midday Options Update Features Procter & Gamble, Intel, General Motors, McDonald's, and Cisco Systems.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Procter & Gamble (NYSE:PG), Intel (NASDAQ:INTC), General Motors (NYSE:GM), McDonald's (NYSE:MCD), and Cisco Systems (NASDAQ:CSCO). 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: Cisco Calls Ride Again

Stocks have edged lower this afternoon amid worries of rising global interest rates. European shares dropped sharply after the European Central Bank (ECB) upped its key interest rate to 2.75 percent, an expected move. The Bank of England also announced that it would keep its rates at 4.5 percent, another expected move. Both European and Asian markets experienced a sell-off after yesterday's disappointing American trading session.

In economic news, the Labor Department announced that initial claims for unemployment benefits dropped to 302,000 last week, well below expectations. The week earlier, initial claims came in at 337,000. According to MarketWatch, investors expected claims to come in at 326,000. In addition, the Commerce Department announced that inventories at U.S. wholesalers contracted in March to match the lowest level on record. Sales jumped 1.3 percent as inventories climbed 0.9 percent. The increase in sales is the largest increase since September 2005.

Got 'Em

Truly, the big news of the day comes from Iraq, where al-Qaida leader Abu Musab al-Zarqawi was killed in an air strike. Al-Zarqawi was labeled the instigator of much of the violence in Iraq, including suicide bombings, kidnappings, and beheadings (reportedly doing some of the work himself). President Bush hailed the killing as a victory over a brutal terrorist who was an "operational commander" of the insurgency. The president added that this death was unlikely to put an end to the violence. Thus far, July-dated oil has shed $1.27 per barrel to trade at $69.70. Earlier in the session, the contract fell as low as $69.54, a price not seen since May 25. Today's pullback extends yesterday's drop following a buildup in U.S. oil and gasoline inventories and the easing of political tension over Iran's nuclear program.

Dow Dealings

Four Dow Jones Industrial Average members are making news this morning, here they are along with a brief description of the news:

--Procter & Gamble (NYSE:PG): the largest percentage gainer on the Dow this afternoon (up 2.9 percent) after yesterday's reiteration of its fourth-quarter sales and earnings forecast. The consumer products firm expects sales growth between 20 and 24 percent while raking in 52 to 54 cents per share during the quarter.

--Intel (NASDAQ:INTC): lost more than one percent after an earnings estimate cut. Citigroup slashed its target for INTC thanks to pricing concerns from its competitor Advanced Micro Devices. The brokerage did keep its price target for INTC at $21.

--General Motors (NYSE:GM): down slightly thanks to a Wall Street Journal report. The Journal reported that GM, Delphi, and their unions have made "substantial progress" in restructuring Delphi's workforce. The ever-popular "people familiar with the talks" noted that a deal could be reached soon. The deal would offer Delphi workers lump-sum payments of $70,000 to $140,000 to leave both the company and their health-care benefits.

--McDonald's (NYSE:MCD): slightly higher after announcing same-store sales. The company announced that global system-wide sales increased 6.2 percent during May, as total worldwide comparable sales were up 4.5 percent. MCD cited longer hours, new products (e.g. Asian Salad and Premium Chicken sandwiches), and its successful breakfast menu (including the launch of its premium coffee blend) as reasons for the increase in sales. Sales in Europe, which has been a source of concern for the company, increased 4.9 percent.

Most-Active Options Update

At 1:41 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 10,847.6) is 0.77 percent lower. The S&P 500 Index (SPX - 1,245.41) has shed 0.85 percent, and the Nasdaq Composite (COMP - 2,118.6) is 1.54 percent lower. At 1:42 p.m. Eastern Time, 3,638,261 calls have changed hands compared to 4,334,077 puts, equaling a single-day put/call volume ratio of 1.19. The CBOE's equity put/call volume ratio was slanted toward the put side, weighing in at 1.35.

Cisco Systems

Earlier today, Cisco System's (NASDAQ:CSCO) CEO John Chambers was tagged as the company's chairman. In addition, CSCO announced that it plans to buy back up to $5 billion worth of common shares. Since the start of a repurchase program in September 2001, CSCO has bought back 1.8 billion common shares at an average price of $18.21 per share. The total price of the buyback stands at $32.6 billion. In addition to the newly approved buyback, the firm may still repurchase $2.4 billion in stock under the previous program. Although CSCO's July 20 call (CYQGD) appears to be the object of bulls' affection today, the news still went over like the proverbial lead balloon. CSCO has lost nearly two percent thus far today, and the stock is clinging precariously to the 19.50 level.

Today's activity has firmly entrenched the 20 strike as the site of peak call open interest in the July series (there is heavy call open interest in the June series). Regular readers of Schaeffer's know that heavy/peak call open interest can provide a layer of resistance. Aside from this potential resistance, the 20 level acted as resistance in the past and there is a good chance that it will take up that role again. If this potential resistance isn't enough, it certainly appears that the company's 10-week moving average is going to attempt a bearish cross of its 20-week cohort. Should this move come to fruition, it may signal further technical struggles.

Let's widen our scope to see how long CSCO has dealt with the 20 level. The monthly chart below shows that it has capped the shares on several occasions throughout 2004. Watch for this to happen again.

CSCO is an underperformer, but it finds the type of optimistic sentiment that makes contrarians rather bearish (dare I say drool?):

--Percent of analysts tracked by Zacks who rate the stock with a "buy" or better: 75%

--Number of analysts tracked by Zacks: 27

--Short-interest ratio: 0.76

--Schaeffer's put/call open interest ratio (SOIR): 0.38

--SOIR percent rank: 15%

--Overall Schaeffer's Equity Scorecard rating: 3.0

As I said, this sort of love for an underperformer should have the contrarians among you smiling a bearish smile. No short-covering support to speak of, love from the speculative options crowd (evidenced by a SOIR in the 15th percentile), and bullish analyst rankings. This combination adds up to a Schaeffer's Equity Scorecard rating of 3.0 out of a possible 10. I have a sneaky suspicion that this rating would be lower if the seven "hold" or worse rankings were in the "buy" realm. Nonetheless, the path of least resistance for the shares should lead lower, and with no support to speak of (until the 17 level), the bears should be smiling.

Click here to see a Weekly Chart of CSCO Since July 2004 With 10-Week and 20-Week Moving Averages and a Monthly Chart of CSCO since January 2003: http://www.schaeffersresearch.com/wire?ID=16181 .

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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 .