Marathon Oil (MRO) announced the spin out of Marathon Petroleum Corporation (MPC). Marathon intends to distribute one share of MPC for every two shares of Marathon. Overall option implied volatility of 26 is near its 26-week average of 28, according to Track Data, suggesting nondirectional price movement.

Cypress Semi (CY) closed up 4% as traders focused on February 22 and 23 calls, with total call volume of 15K contracts, compared to 7K puts. January and March option implied volatility of 38 is below its 26-week of 41, according to Track Data. Active call volume suggests traders positioning for price movement.

Options Update is by Stock Specialist Paul Foster of theflyonthewall.com.

To continue to grow, many companies have little choice but to spend large amounts on acquisitions. But at a certain point, the operations get too complicated and bloated. The solution? Yes, it's to unwind the deals. Often, Wall Street will be enthusiastic. Just look at Wednesday's announcement from conglomerate ITT (ITT). On news of its plan to split into three publicly traded companies, the shares spiked 16%.

In fact, this may actually be the start of a key trend for 2011. After all, early Thursday Marathon Oil (MRO) announced that it will spin-off its refining and sales operations as a public company (the deal should be closed on June 30). In early trading, the company's shares were up about 10%.

Oil rose above $90 per barrel on Wednesday, and the average U.S. price for unleaded regular topped $3 per gallon. Moreover, with the U.S. economic recovery likely to strengthen in 2011, and will strong emerging market GDP growth gobbling up more barrels of oil, both oil and gasoline prices are likely to rise further next year.

That's good news for investors in most oil stocks, but bad news for U.S. consumers, particularly motorists. However, the view from here argues that one should not dabble in the futures market to try to hedge against rising oil prices. The price of oil is influenced by more than 10 variables, and unless you're prepared to lose up to $500 per day, you're probably going to be at a trading disadvantage.

If you're looking for a smooth ride or a vector north, you'll want to avoid the shares of Marathon Oil Corp (MRO), first discussed here on April 20, 2009, at a price of $28.55.

Marathon shares remain on the mend, but talk about fits and starts: $5 jumps higher are followed by $4 retracements south. Further, Marathon cleared clutter near $35 this fall, only to fall back.

Even so, a mild Marathon uptrend remains intact, hence the evaluation to stick with the trade.

Marathon Oil (MRO) was the target of a neutral-to-bullish credit spread on Thursday. Shortly after 2 p.m. Eastern, the trader sold to open 1,610 contracts of the stock's August 32 put, and simultaneously bought to open an equivalent number of MRO's August 30 put.

This strategy, known as a short put spread, is essentially a bet that MRO will remain at or above $32 through August expiration. In other words, the trader's main goal is for MRO to remain above the sold put strike, which is the crux of this spread. The purchased put is used only to limit the speculator's risk in the event of an unexpected slide by the underlying equity.

"We think there is too much risk to owning pure refiners in this environment," says John Buckingham.

The editor of The Prudent Speculator explains, "However, there is one company with a valuation now hurt by its refining exposure, but that is shifting upstream in a way that makes the eventual mix worth owning now: Marathon Oil (MRO).

"Since the turn of the century, Marathon Oil has generated an average of 85% of its revenue from refining. And profit coming from the upstream division was weighted by taxes and royalties. As a result, the company has traditionally been valued much more like a refiner than a true integrated oil company.

"Be careful what you wish for" goes the ancient Chinese proverb. The United States government, pushed and prodded by its industrial leaders to get the Chinese to raise the value of the Yuan, should heed these wise words.

The goal, of course, is to make U.S. goods and services cheaper, thereby improving the balance of trade. The problem is that it makes everything cheaper.

It is true that it would support the remaining manufacturing base, software companies, commodities and consulting services. However, this is but a portion of what we have to offer.

What happens if the Yuan increases by 20% against the dollar, and they decide to buy International Business Machines (IBM) the company, not just IBM mainframes? This is not so far fetched. Lenovo bought the ThinkPad notebook computer division from IBM and now it sells Lenovo ThinkPads to us. They would be able to buy IBM 20% cheaper than you or I could buy it.

When I look at the numbers for Marathon Oil (NYSE: MRO), it is hard for me to believe the company has not been bought out already. Capitalized at $22 billion, it would be easy for most of the major oil companies to swallow whole.

Contrarian that I am, my view differs from that of Credit Suisse, which downgraded the stock yesterday based on valuation and lack of a visible catalyst for near-term growth.

Readers of the this space know that two preferred sectors are integrated oil and refining sectors. Would that the United States could wean itself from oil relatively quickly and transition to a cheap, environmentally-friendly, alternative energy source (natural gas, electric, fuel cell) for auto transportation. Unfortunately, as researchers remind us, that goal is at least a decade away, which means companies like Marathon Oil (NYSE: MRO) will remain in the catbird seat.

Marathon Oil recently concluded that, rather than spin-off units, it is in the best interests of its shareholders to remain an integrated business. Net result? Earnings stability for investors, thank you.

MOST NOTEWORTHY: Lululemon, National City and Devon Energy were today's noteworthy upgrades:

• Thomas Weisel upgraded shares of Lululemon (NASDAQ:LULU) to Overweight from Market Weight as they believe the company's momentum continues following the strong results; the firm maintains a $43 target on shares.
  
• Bear upgraded National City (NYSE:NCC) to Outperform from Underperform citing favorable risk/reward following reports is is considering a transaction with KeyCorp (NYSE:KEY).
  
• JP Morgan raised Devon Energy (NYSE:DVN) to Overweight from Neutral citing solid organic growth with high rates of returns.

OTHER UPGRADES:

• Micron (NYSE:MU) was upgraded at Goldman to Neutral from Sell.
  
• Merrill raised eBay (NASDAQ:EBAY) to Buy from Neutral.
  
• Oppenheimer upgraded to Outperform from Perform Marathon Oil (NYSE:MRO).

Readers of this space know that oil/oil services has been a preferred sector. Given ramping demand in the developing world and oil's importance in a growing global economy, oil and oil services companies are likely to continue to experience steady demand for their services/products, and a provider worth a review is Marathon Oil.

Marathon Oil Corporation (NYSE: MRO) has what analysts like to see in an oil operation: a large/geographically-wide exploration footprint, very good production, and strong refining operations.

Further, that last tangible may be the most valuable, given the barely-adequate refinery capacity in the United States. What's more, the stock market's early 2008 sell-off has created a buying opportunity with Marathon. With a p/e of about 9, MRO's risk/return ratio is low. The Reuters FY 2008/FY 2009 EPS consensus estimates for MRO are $6.33 to $6.77.

MOST NOTEWORTHY: Goldman Sachs, Lehman and TD AmeriTrade were today's noteworthy downgrades:

• UBS downgraded Goldman Sachs (NYSE: GS) to Neutral from Buy. The firm believes liquidity problems and de-leveraging in the capital markets will get worst before they get better; UBS also downgraded Bank of New York (NYSE: BK), State Street (NYSE: STT) and Invesco (NYSE: IVZ) to Neutral from Buy.
  
• Following Bear Stearns' (NYSE: BSC) downfall, UBS also downgraded Lehman Brothers (NYSE: LEH) to Neutral from Buy and said the company could be the "next on the list" for the confidence/liquidity crisis by some investors.
  
• TD AmeriTrade (NASDAQ: AMTD) was downgraded to Neutral from buy at UBS and to Market Perform from Outperform at Friedman Billings. Friedman Billings downgraded TD Ameritrade citing slowing client activity as well as margin compression.

OTHER DOWNGRADES:

• JP Morgan cut Portugal Telecom (NYSE: PT) to Underweight from Neutral.
  
• Goldman downgraded Marathon Oil (NYSE: MRO) and Holly Corp (NYSE: HOC) to Neutral from Buy and removed Frontier Oil (NYSE: FTO) from its Conviction Buy List.

MOST NOTEWORTHY: Texas Instruments, Check Point, Mobile Mini, Vineyard National Bancorp and TorreyPines were today's noteworthy downgrades:

• Jefferies downgraded shares of Texas Instruments (NYSE: TXN) to Hold from Buy, as they believe the company's fundamentals are weakening given the worse than anticipated share losses in the wireless segment. Shares were also lowered to Neutral from Overweight at JP Morgan, to Equal Weight from Overweight at Lehman, to Neutral from Outperform at Credit Suisse, and to Neutral from Buy at UBS to reflect the slowdown in the company's wireless growth.
  
• Check Point Software (NASDAQ: CHKP) was downgraded to Hold from Buy at Jefferies on valuation and highlights the difficult spending environment in 1H08 as well as the company's tough comps.
  
• Deutsche Bank downgraded shares of Mobile Mini (NASDAQ: MINI) to Hold from Buy following the company's negative preannouncement.
  
• Oppenheimer lowered Vineyard National Bancorp (NASDAQ: VNBC) to Neutral from Buy to reflect slower pace of balance sheet growth and lower gain-on-sale income estimates.
  
• JMP Securities downgraded TorreyPines (NASDAQ: TPTX) to Market Outperform from Strong Buy and said Tezampanel's lack of dose response and statistically significant pain free response will keep the stock in the "show me" category.

OTHER DOWNGRADES:

• JP Morgan downgraded ConocoPhillips (NYSE: COP) to Underweight from Neutral and Marathon Oil Corporation (NYSE: MRO) to Neutral from Overweight.
  
• UBS downgraded Zions Bancorporation (NASDAQ: ZION) to Neutral from Buy.
  
• Citigroup downgraded Kellogg Company (NYSE: K) to Hold from Buy.
  
• ThinkEquity downgraded ValueClick (NASDAQ: VCLK) to Source of Funds from Buy.

MOST NOTEWORTHY: Obagi Medical, Medical, Microsemi, Marathon Oil and Encore Energy were today's noteworthy initiations:

• Obagi Medical Products (NASDAQ: OMPI) was initiated with a Positive rating at Susquehanna, as they like Obagi's growth opportunity in the aesthetics-dermatology market and views the company as an interesting take-out target for a larger specialty pharmaceutical company.
  
• Montgomery believes Microsemi Corporation's (NASDAQ: MSCC) core business is on track and gaining momentum based on leverage in both high-reliability and high-performance analog. The firm started shares with a Buy rating and $34 target.
  
• Goldman initiated Marathon Oil Corporation (NYSE: MRO) with a Buy rating and $72 target, as they view Marathon as most favorably leveraged refining company and would use seasonal weakness in refining margins as a buying opportunity.
  
• RBC Capital sees a large opportunity for Encore Energy Parners (NYSE: ENP) to grow its reserves from internal negotiated transactions from its parent, Encore Acquisition Companies (NYSE: EAC), starting shares off with an Outperform rating and $26 target.

OTHER INITIATIONS:

• BMO Capital initiated DCT Industrial Trust (NYSE: DCT) with a Market Perform rating.
  
• Lehman started shares of Darden Restaurants (NYSE: DRI) with an Overweight rating and $52 target.
  
• The firm also reinstated Radian Group (NYSE: RDN) and MGIC Investment Corporation (NYSE: MTG) with Underweight ratings.

MAJOR PAPERS:

• The Wall Street Journal reported that Telefonica SA ADS of Spain (NYSE: TEF), in a $5.6B deal, has won a stake in Telecom Italia (NYSE: TI), but not control.
• According to the Wall Street Journal, Jones Apparel Group Inc (NYSE: JNY) CEO Peter Boneparth may sell Barney's, which it purchased in 2004 for $400M and today may be worth $800M.
• The Wall Street Journal reported that Marathon Oil Corporation (NYSE: MRO) is constructing a $3.2B addition to its biggest refinery in Louisiana for diesel fuel.
• The Wall Street Journal reported that Deutsche Boerse is in talks to make a $2.6B offer for International Securities Exchange Holdings Inc (NYSE: ISE).
• Senior Citigroup Inc (NYSE: C) executives are afraid the company could become a target of activist hedge funds seeking to break the company up, reported the Financial Times.
• According to the Financial Times, a number of companies involved in options backdating scandals, including McAfee Incorporated (NYSE: MFE) and Novell Inc (NASDAQ: NOVL), could be vulnerable to takeover by activist investors.

OTHER PAPERS:

• The New York Times "Dealbook" reported that Porsche has bid $48.9B for Volkswagen AG (OTC: VLKAY), and the bid will run for four weeks starting today.
• The News Journal reported that AstraZeneca (NYSE: AZN) has received a subpoena from the Delaware Attorney General, which seeks documents about the company's contracts with Delaware hospitals.