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Schaeffer's Midday Options Update Features Novell, Wachovia, Charles Schwab, Hewlett-Packard, and Apple Computer

Posted on: Monday, 17 April 2006, 18:00 CDT

Today's Schaeffer's Midday Options Update features Novell (NASDAQ:NOVL), Wachovia (NYSE:WB), Charles Schwab (NASDAQ:SCHW), Hewlett-Packard (NYSE:HPQ), and Apple Computer (NASDAQ:APPL). 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: An Option Strategy for Apple Computer

Stocks were hovering close to breakeven this morning but selling set in at about 10:20 a.m. Eastern time, and the markets have trended steadily down. Early earnings reports have been largely positive, but oil's move toward the $70-per-barrel level is helping to thwart the market's progress.

We could see a triple-digit loss on the Dow Jones Industrial Average (DJIA) by the time the closing bell rings, and a test of support at 11,000 might come sometime this week.

Larry Loves Linux

A report in the Financial Times brings news that Oracle (ORCL) is considering a bid for Novell (NASDAQ:NOVL), which distributes the Linux operating system. Larry Ellison, the energetic leader of ORCL, said in an interview that he would like to offer a complete set of software. "Such a move would redraw the software landscape and open a new front in Oracle's long rivalry with US rival Microsoft," the newspaper said. ORCL has chipped away at this problem for a long time. In the mid-1990s it championed the cause of the so-called "thin client," you might remember, as a means to wrest Microsoft's (MSFT) control of the desktop.

Banking on More

Wachovia (NYSE:WB) posted first-quarter results this morning. Net income came in at $1.73 billion, or $1.09 per share, compared to $1.62 billion, or $1.01 per share a year ago. Ex-items earnings of $1.12 matched the Street expectation. Revenue showed a nine-percent jump to $7.06 billion. The shares gapped lower this morning and were down 1.5 percent at last check.

68 Percent, Could Do Better

Charles Schwab (NASDAQ: SCHW) announced first-quarter figures before the bell, with net income rising 68 percent to $243 million, or 19 cents per share, matching the Street estimate. Revenue climbed by 21 percent to $1.28 billion. Nevertheless, the Street reacted negatively to the news, and the stock was down 2.1 percent at last check.

HP Calculations

A Bear Sterns (BSC) analyst, Andy Neff, commented that he believes Hewlett-Packard's (NYSE:HPQ) stock could approach $50 if the company continues to cut costs and sustain recent sales gains. If you are bullish on HPQ, it might soon be time to buy. The stock is in an uptrending channel, pulling back toward support at its 20-week moving average. It has not closed a week below this trendline since April 2005.

Most-Active Options Update

At 2:29 p.m. Eastern time, the Dow Jones Industrial Average (DJIA - 11,054.8) is down 0.74 percent. The S&P 500 Index (SPX - 1,281.93) has lost 0.56 percent, and the Nasdaq Composite (COMP - 2,301.6) has retreated 1.05 percent. At 2:29 p.m. Eastern time, 2,846,372 calls have changed hands compared to 2,118,572, equaling a single-day put/call volume ratio of 0.74. The CBOE's equity put/call volume ratio weighed in at 0.68.

Apple Computer

News of Boot Camp, Apple Computer's (NASDAQ:AAPL) new software that allows you to load Microsoft Windows on a Macintosh, has caused much speculation amongst techies, who are still trying to work out where this new possibility will lead. Will AAPL abandon its own operating system, its chief asset? Believe it or not, some people are discussing that possibility. Will Windows actually ship with AAPL machines, the way it does with Dell (DELL) machines? That doesn't sound good. Will the Mac operating system load on PCs? That opens up a market comprising tens of millions of machines. Wow! Yummy!

Until the dust settles and people start to calm down, AAPL stock could exhibit more volatility than usual, and I think that makes it worth watching. The AAPL April 65 put (QAA PM) was hurtling across the tape this morning. By the time we grabbed our figures, 10,894 contracts had changed hands. Open interest before the bell was 41,823 contracts. Remember that April options trade for the last time on Friday, so perhaps positions are being rolled forward.

There were only two blocks larger than 2,000 contracts, both on the International Securities Exchange, the electronic options exchange. One went off at 12:40 p.m. Eastern time, and comprised 2,444 contracts. The other crossed 16 minutes later, and comprised 2,500 contracts.

AAPL hit an all-time high in January, and the stock has been pulling back to consolidate since then. During the past two months, it has tested the support of its powerful 10-month moving average, which it has not closed below since April 2003. That trendline is now in the vicinity of 61, so watch for continuing support there.

Quick Facts on AAPL:

-- Percent of analysts tracked by Zacks who rate the stock with a "buy" or better: 59%

-- Number of analysts tracked by Zacks: 17

-- Short interest as a percent of float: 2.91 %

-- Short-interest ratio: 0.83

-- Schaeffer's put/call open interest ratio (SOIR): 0.92

-- SOIR percent rank: 57%

-- Overall Schaeffer's Equity Scorecard rating: 5.0

The 24.4 million shorted AAPL shares would take less than a day to cover at the current average daily trading volume, so a short-covering rally is unlikely. The Schaeffer's put/call open interest ratio (SOIR) for AAPL is close to unity, suggesting that puts and calls are more or less equally popular in the April and May series of options. Next Monday, AAPL will start to trade June options for the first time this year. This SOIR reading is in the 57th percentile, so it is a very neutral indicator, unfortunately.

Of the 17 covering brokerages listed by Zacks, 10 rate the stock a "buy" or better and there are no "sells" at all. This configuration leaves scope for downgrades, which could be painful for investors.

With that in mind, it is pick time on Options Update. You could bet on volatility and play a straddle (buying a put and a call in the hope of a significant move up or down). But I'm feeling bold today, and I'm going to paper trade a May 65 call (QAA QM). I'll report back and let you know how I do. The last paper trade I suggested, on Wednesday last week, was a Harley-Davidson April 50 call. That's currently showing a gain of 43.75 percent.

As always, keep in mind that playing options is far from an exact science, and that any positions could garner losses. My Autozone April 95 call is down 19.4 percent today and it is due to expire this week so I'm going to close it out to cut my loss. It pays to spend plenty of time trading on paper before you use real money. However, with the leverage of options on your side, you stand to make more than your potential losses. Just remember to use sound judgment when entering any trade, set your stop loss where you feel most comfortable, and never invest more than you can afford to lose. Until next time, good luck trading!

Monthly chart of AAPL since January 2003 with 10-month moving average: http://www.schaeffersresearch.com/wire?ID=15807 .

The best way to take advantage of the timely Schaeffer commentaries is to sign up to receive their free e-newsletters -- Opening View, Market Recap and Monday Morning Outlook. Click here to have the Schaeffer's commentaries delivered to you free via email every day. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU12M&PAGE=1 .

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 .

Source: Business Wire

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