Schaeffer's Midday Options Update Features Tim Hortons, Lucent Technologies, Alcatel, Bayer, and Verizon Communications

Business Wire, March 24, 2006

CINCINNATI -- Today's Schaeffer's Midday Options Update features Tim Hortons (NYSE:THI), Lucent Technologies (NYSE:LU), Alcatel (NYSE:ALA), Bayer (NYSE:BAY), and Verizon Communications (NYSE:VZ). 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 Options Strategy for Verizon Communications

The market was in positive territory this morning, but appears to have rolled over following the latest economic news. In fact, housing data and durable goods orders have largely trumped Google's (GOOG) addition to the S&P 500 Index (SPX) and a wealth of merger and acquisition news. At last check, the Dow Jones Industrial Average was hovering below breakeven, the SPX was down less than one point, and the Nasdaq Composite was still googling in positive territory.

Blinded Me with Economics

In economic data, U.S. new home sales plunged 10.5 percent in February to a seasonally adjusted annual rate of 1.080 million, the lowest since May 2003. Analysts had predicted a pullback to 1.21 million. Meanwhile, January sales were revised lower to a 1.207 million unit pace from 1.233 million previously estimated.

Elsewhere, February durable good orders jumped 2.6 percent compared to the Street estimate for an increase of 1.5 percent. Excluding transportation, orders fell 1.3 percent, the first drop in four months. January durable goods orders were revised to an 8.9-percent decline from a 9.9-percent drop that was previously estimated. Orders for core capital goods equipment rose 1.6 percent in February.

Hortons Hears a Who

Tim Hortons (NYSE:THI) officially began trading today, rising more than 30 percent from its initial public offering price (IPO) of $23.16 per share. THI offered 29 million shares via underwriters RBC Capital Markets and Goldman Sachs. Wendy's International (WEN) will temporarily retain between 82 percent and 85 percent of THI. The company is currently the largest fast-food chain in Canada, with 2,597 restaurants. It also operates 288 restaurants in the U.S.

Mr. Telecom Man

Telecom companies have something to talk about today, as Lucent Technologies (NYSE:LU) and Alcatel SA (NYSE:ALA) are reportedly in advanced discussions regarding a $33 billion merger that could be the beginning of a new wave of consolidation in the sector. The companies said they are discussing a "merger of equals" that would be priced at market value, or no premium to the stock price. Should the deal be sealed, ALA would gain extended access to U.S. telecom operators.

Grin and Bayer It

Bayer AG (NYSE:BAY) announced late last night that it has bid $19.51 billion in cash for fellow German drugmaker Schering AG (SHR), topping Merck's (MRK) bid of $17.4 billion. In the announcement, BAY stated that SHR's board "welcomes Bayer's proposal and has stated its intention to approve the planned takeover offer and recommend acceptance by the company's stockholders." The proposed combined company, which would be called Bayer-Schering Pharmaceuticals, would be based at SHR's headquarters in Berlin.

Most-Active Options Update

At 1:47 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 11,261.9) is down 0.08 percent. The S&P 500 Index (SPX - 1,301.23) has dropped 0.03 percent, and the Nasdaq Composite (COMP - 2,304.7) has added 0.50 percent. At 1:48 p.m. Eastern time, 2,189,740 calls have changed hands compared to 1,380,749 puts, equaling a single-day put/call volume ratio of 0.63. The CBOE's equity put/call volume ratio weighed in at 0.61.

Verizon Communications

With the LU and ALA deal swirling around the telecommunications sector today, it should come as no surprise that leading telecom Verizon Communications (NYSE:VZ) is garnering a bit of attention today. However, with the stock pulling back on the news, and calls ruling the day in the options pits, VZ may be attracting the wrong kind of attention.

Diving into the action, VZ's April 35 call has attracted the lion's share of today's activity, with more than 7,000 of these bullishly oriented contracts crossing the tape so far. Most of the larger block trades are crossing at the ask, suggesting purchased calls. However, with open interest at this strike of a whopping 43,422 contracts, we will have to wait until tomorrow to see if any of this activity translates into new open positions.

The 35 level is key for VZ, as it is not only a technical road block for the shares, but it also harbors peak call open interest for the front three months of options. As good readers of SchaeffersResearch.com know, heavy overhead call open interest can create some options-related resistance for a security. Complicating matters for VZ is the fact that it is locked in a long-term downtrend under its 10-month and 20-month moving averages. What's more, the 20-month trendline resides near the 35 level and could help reject VZ's latest attempt to rally back above this key level.