MAJOR PAPERS:

• Merger talks between UAL Corporation's (NASDAQ: UAUA) United Airlines and US Airways Group Inc (NYSE: LCC) have been put off for now, the Wall Street Journal reported. United is reportedly close to an alliance with Continental Airlines Inc (NYSE: CAL).
• Harris Corporation (NYSE: HRS) is for sale and the company has begun to hear from interested parties, the Wall Street Journal also reported. Harris is looking for $75 to $80 per share. Speculation about the bidders includes General Dynamics Corporation (NYSE: GD) and Northrop Grumman Corporation (NYSE: NOC).

OTHER PAPERS:

• The Charleston Gazette reported that Chesapeake Energy Corporation (NYSE: CHK) has decided not to build its Eastern Division headquarters in Charleston, West Virginia in the wake of a West Virginia Supreme Court ruling on May 22.

WEB SITES:

• AppleInsider reported that Apple Inc (NASDAQ: AAPL) is expected to announce a back-to-school deal soon that will encourage students to buy new Macs by offering some of the largest incentives in the history of the company.

Higher oil prices and the surging aviation fuel costs they imply may reduce the benefits of an airliner merger, such as the potential deal between United Airlines and U.S. Airways, but they don't eliminate a merger's long-term positives, an analyst argued Tuesday.

Further, C. Leonard Bauer, independent stock analyst, told BloggingStocks Tuesday the potential United-US Airways union would benefit the sector in that it would be the second merger this year among major airlines in the United States, also known as the legacy carriers.

Shares of UAL Corp. (NYSE: UAUA), parent of United Airlines, are down 88 cents to $14.10, while US Airways (NYSE: LCC) are down 55 cents to $7.79 in Tuesday trading.

Sector right-sizing

"The deal would take another legacy carrier off the table, after the Delta-Northwest merger, and that can only help the sector from an earnings standpoint," Bauer said. "The United States airline sector leads the league in airline route redundancy and duplicate hubs. This second deal would further tighten the sector."

Look for the stalled Delta Air Lines (NYSE: DAL) / Northwest Airline (NYSE: NWA) deal talks to regain momentum and the merger to be announced in the week ahead, an analyst confidently told BloggingStocks Thursday.

Independent stock analyst C. Leonard Bauer, formerly of Prudential, said the Delta / Northwest talks may be stalled by the inability of the companies' pilots unions to reach an agreement on seniority lists, but that traditional, formidable hurdle will not stop this deal from coming to fruition due to its "strong marriage fundamentals."

Attractive fundamentals

Bauer said three fundamentals will drive the deal: absence of overlapping city pairs, economies of scale and passenger demand.

"First, there's the overall flight route fit. Delta and Northwest have only 10 or 12 cities pairs that overlap, so from a destination coverage standpoint, the deal is very attractive," Bauer said. "Second, the new company will have massive economies of scale and will be a force in the new global market. This will be a profitable airline."

Is the U.S. airline sector on the eve of another transformation? One analyst thinks it may be, if recent merger rumblings are any indication.

The Delta Air Lines (NYSE: DAL) / Northwest Airline (NYSE: NWA) merger discussions and chatter that Germany's Lufthansa is considering an investment in a potential merger between United (NASDAQ: UAUA) and Continental (NYSE: CAL) suggest to independent equities analyst C. Leonard Bauer that a new commercial aviation paradigm may be up ahead.

"When you look back at the last 30 years, you can say that the 1980s, clearly, was the decade when mergers were needed to meet the demands of the new market, basically the mass consumer market in the U.S.," Bauer told BloggingStocks Wednesday. "Those larger carriers' lowered seat prices led to a huge increase in domestic travel, which helped bring flight travel to the typical citizen."

MAJOR PAPERS:

• The Wall Street Journal reported that KKR Financial Holdings LLC (NYSE: KFN), a unit of Kohlberg Kravis Roberts, revived concerns of a credit crunch after it asked for a restructuring of billions of dollars in short-term debt.

OTHER PAPERS:

• According to sources, the Chicago Tribune reported that Deutsche Lufthansa AG (OTC: DLAKY) could look to take an equity stake in a merger between Continental Airlines Inc (NYSE: CAL) and UAL Corporation's (NASDAQ: UAUA) United Airlines.
• The Associated Press reported that the pilots' unions of Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) are unable to agree on how seniority for the companies' pilots would work under a combined carrier. The impasse puts the deal in "serious jeopardy," inside sources reported.

WEB SITES:

• Electronics retailer Sharper Image Corporation (NASDAQ: SHRP) has filed for bankruptcy, citing declining sales and profitability, Bloomberg reported.

Continental (NYSE: CAL) closed at $28.70 Thursday.

CAL and United Airlines (NYSE: UAUA) are in advanced negotiations and could complete a combination quickly if Delta (NYSE: DAL) and Northwest Airlines (NYSE: NWA) strike a deal, says Dow Jones.

WTI Crude oil is recently up .12% to $95.57 according to Bloomberg.

CAL March option implied volatility of 71 is above its 26-week average of 58 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Delta Air Lines and Northwest Airlines may reach a merger agreement within weeks after sharing details of the plan with pilot unions, people close to the talks said, Bloomberg News reported Monday.

An announcement of the merger may come within weeks, Bloomberg News reported.

The merger would create the world's biggest airline in terms of traffic, Delta served about 74 million passengers in 2007; Northwest, about 56 million. The combined entity would vault past no. 1 carrier American Airlines (NYSE: AMR), which served 129.5 million passengers.

Delta's (NYSE: DAL) shares were down 23 cents to $19.95, while Northwest (NYSE: NWS) declined 23 cents to $20.62 in Monday afternoon trading.

Analyst C. Leonard Bauer told BloggingStocks Monday a Delta / Northwest represents a good operational fit, for several reasons.

MAJOR PAPERS:

• Within two weeks a merger between Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) is expected to be announced. Not far behind may be one between UAL Corporation's (NASDAQ: UAUA) United Airlines and Continental Airlines Inc (NYSE: CAL), the Wall Street Journal reported.

WEB SITES:

• Bloomberg reported that Berkshire Hathaway Inc (NYSE: BRK.A) Chairman Warren Buffett forecast that the dollar's value is likely to decline if policies remain unchanged and said he believes a credit crunch is not under way.
• Tech Crunch reported that either Google Inc (NASDAQ: GOOG) or News Corp's (NYSE: NWS.A) MySpace is likely to announces a social space acquisition in the near-future. According to industry sources, the acquisition could be in the $1B-$1.5B range and may involve Bebo.

Delta Air Lines (NYSE: DAL) is said to be seriously considering a merger with either Northwest Airlines or United Airline's parent UAL Corp, people close to the matter say, The Wall Street Journal reported Friday.

According to the Journal, Delta is expected to give CEO Richard Anderson permission to pursue formal mergers talks with both Northwest and United, a source with knowledge of the matter said.

Delta shares were down 7 cents to $15.91, while Northwest (NYSE: NWS) declined 22 cents to $15.63, and United (NYSE: UAUA) fell 59 cents to $31.60 amid a broad market sell-off Friday afternoon.

Too many carriers

Many sector analysts believe the U.S. market has too many carriers, and could benefit from two or even three mergers or takeovers. American Airlines (NYSE: AMR) is the largest carrier by traffic, followed by United, Delta, Continental (NYSE: CAL) and Northwest.

Continental Airlines, Inc. (NYSE:CAL), like many of its competitors, has suffered through another year of stock declines. Hit by surging fuel costs and a slowing economy, the carrier's stock has declined by almost 50% since the beginning of the year. The airline has done a good job of diversifying revenue sources. More than 40% of revenue is coming from International routes. These routes have become the bread and butter for most carriers as they are typically full of business travelers. Many of my friends fly Continental to Tel-Aviv, Israel, and they also say that it's just packed with businessmen. With a growing global economy this should be a catalyst for Continental. If, and it's a big if, fuel costs decline, this will help drastically improve margins and the stock price will react in kind.

If you are looking at a way to play the global economic growth game, take a look at Continental.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/19/07.

Continental Airlines, Inc. (NYSE: CAL) shares are declining this morning with other airline stocks as oil futures are rebounding from yesterday's drop. The strong showing for oil is due to a pipeline fire in Minnesota. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CAL.

After hitting a one-year high of $52.40 in January, the stock hit a one-year low of $25.18 last week. This morning, CAL opened at $28.55. So far today the stock has hit a low of $28.50 and a high of $29.09. As of 11:05, CAL is trading at $27.00, down $0.98 (-3.5%). The chart for CAL looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.

MOST NOTEWORTHY: Jones Lang LaSalle, Digital River, Dynamic Materials, Allot Communications and Oxford Industries were today's noteworthy downgrades:

• Wachovia downgraded shares of Jones Lang LaSalle (NYSE: JLL) to Market Perform from Outperform, as they expect the deterioration in the credit markets to lead to fewer closed deals over the next year.
  
• Oppenheimer transitioned coverage of Digital River (NASDAQ: DRIV) and downgraded shares to Neutral from Buy. The broker finds shares fairly valued given the pricing pressure and customer concentration.
  
• Jefferies downgraded shares of Dynamic Materials Corporation (NASDAQ: BOOM) to Hold from Buy on valuation as they believe shares are already pricing in the company's near-term earnings potential.
  
• Allot Communications (NASDAQ: ALLT) was downgraded to Sector Performer from Outperformer at CIBC World Markets after the company pre-announced weaker-than-expected Q3 results.
  
• Oxford Industries (NYSE: OXM) was downgraded to Hold from Buy at Morgan Joseph and to Neutral from Buy at SunTrust following the disappointing Q1 report and guidance.

OTHER DOWNGRADES:

• Piper Jaffray downgraded Target Corporation (NYSE: TGT) to Market Perform from Outperform.
  
• Thornburg Mortgage (NYSE: TMA) was downgraded to Underperform from Market Perform at Keefe Bruyette.
  
• JP Morgan removed Continental Airlines (NYSE: CAL) from its Focus List.
  
• NRG Energy (NYSE: NRG) was downgraded to Neutral from Buy at Calyon.

Continental Airlines, Inc. (NYSE: CAL) shares are trading higher today as oil futures are sinking today, dropping below $80 per barrel and giving most airline stocks a boost on the expectation of lower fuel costs. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CAL.

After hitting a one-year high of $52.40 in January, the stock dipped to a one-year low of $26.21 in August. CAL opened this morning at $35.30. So far today the stock has hit a low of $35.25 and a high of $36.98. As of 10:50, CAL is trading at $36.30, up $0.85 (2.4%). The chart for CAL looks neutral and deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 11 weeks as long as CAL is above $25 at December expiration. Continental would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.

Continental Airlines, Inc. (NYSE: CAL) opened at $26.95. So far today the stock has hit a low of $26.55 and a high of $28.06. As of 10:55, CAL is trading at $27.90, up $1.45 (5.5%).

After hitting a one year high of $52.40 in January, the stock has been sliding over the past eight months. Rising crude oil futures brought airlines down hard in yesterday's market, with CAL dropping a whopping 17%. Today the stock is climbing back with crude oil prices retreating in early trading, but it has a lot of ground to make up after yesterday's plunge. An analyst also said today that he expects CAL to rebound above $35. Technical indicators for CAL are bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $22.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make an 11.1% return in just 5 weeks as long as CAL is above $22.50 at September expiration. CAL would have to fall by more than 18% before we would start to lose money.

CAL hasn't been below $22.50 at all in the past year and has shown support around $26.50 recently. This trade could be risky if oil prices rise again to crazy levels, but even if that happens, CAL may find historical support just below $25.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in CAL.

Continental Airlines, Inc. (NYSE: CAL) opened at $32.85. So far today the stock has hit a low of $32.26 and a high of $33.21. As of 10:50, CAL is trading at $32.38, up $0.70 (2.2%).

After hitting a one year high of $52.40 in January, the stock has slid downward over the past eight months. CAL is leading all the airlines up today after reporting July traffic rose by 3.6%. Technical indicators for CAL are bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make an 8.7% return in just seven weeks as long as CAL is above $25 at September expiration. CAL would have to fall by more than 22% before we would start to lose money.

CAL has hasn't been below $25 since last August and has shown support around $31.50 recently. This trade could be risky if fuel prices continue to rise, but with crude oil at all-time highs, there should be some decrease in demand and price on the horizon.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in CAL.