Kraft Foods Inc. (NYSE: KFT) opened at $34.90. So far today the stock has hit a low of $34.54 and a high of $35.20. As of 10:50, KFT is trading at 34.89, down 0.64 (-1.8%).

After hitting a one year high of $37.20 in June, the stock has dropped down to test support around 35 over the past two weeks. The stock is slipping today after the company announced that it offered $7.2 billion in cash to acquire the biscuit division of French food company Groupe Danone SA (NYSE: DA). Recent technical indicators for KFT have been bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $37.50 range. KFT has not been above $37.50 at all in the past year and has shown resistance around $36 recently. This trade could be risky if the company's earnings (due out in late July) are a positive surprise, but even if that happens, this relatively stable stock has had some serious resistance around $36 for much of the past year.

Brent Archer is an options analyst and writer at Investors Observer. Do you have any deadwood in your portfolio? Check out the 18 Warning Signs That Tell You When To Dump A Stock.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor control positions in KFT or DA.

There have been rumors for a few days that Kraft (NYSE: KFT) would buy Groupe Danone's (NYSE: DA) biscuit unit to improve its sales in Europe. Well, dreams do come true. Kraft has offered $7.2 billion for the Danone operation, and it appears that the two companies are close to a deal.

Figures from the two companies put Kraft's biscuit and cookie annual sales at about $5 billion and Danone second in the world at $3 billion. Certainly Kraft management will say that there are savings in cutting employees, factories and distribution channels. And that may be right, but some will say that they see the invisible head of raider Nelson Peltz pushing Kraft to be more aggressive in transforming its business.

Petlz recently bought 3% if Kraft. As if reading from the 'raider' handbook on badgering CEOs, he immediately asked the company to divest under-performing assets and look at alternative uses for its cash. That usually includes special dividends to shareholders or stock buybacks.

Kraft may be indicating that it will buy new businesses with its capital whether it be cash or stock, and Mr. Peltz can keep his seat in the peanut gallery and watch.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Pepsico, Inc. (NYSE: PEP) opened at $65.38. So far today the stock has hit a low of $65.00 and a high of $66.00. As of 10:50, PEP is trading at $65.75, up $0.90 (1.4%).

After hitting a one-year high of $69.64 in May, the stock dipped below support at $66 in mid-June. Spinoff buzz in the sector is lifting many consumer goods stocks this morning as it looks as though Kraft Foods (NYSE: KFT) may purchase Group Danone's (NYSE: DA) LU Biscuit Unit. PepsiCo is also rumored to be interested in a purchase, perhaps in a separate Danone unit, though KFT is the clear front-runner for the biscuit unit at the moment. Recent technical indicators for PEP have been bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $62.50 range. PEP hasn't been below $62.50 for more than a few days at a time since November and has shown support around $64 recently. This trade could be risky if the company's earnings (due out on July 24) disappoint, but even if that happens, it looks like this stock could find support from its 200-day moving average, which it has been testing over the past week.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: At publication time, Brent neither owns nor controls positions in PEP, KFT, or DA.

MOST NOTEWORTHY: Three food companies, TiVo Inc (TIVO), Circuit City Stores, Inc (CC) and AutoZone, Inc (AZO) were today's most noteworthy downgrades:

• Deutsche Bank downgraded Groupe Danone (NYSE: DA), Unilever (NYSE: UL) and Nestle (OTC: NSRGY) to Hold from Buy as the firm believes the three food producers will suffer from rising prices for agricultural commodities.

• SMH Capital downgraded shares of TiVo (NASDAQ: TIVO) to Sell from Hold on valuation as the firm believes the market has already priced in considerable penetration of the new TIVO/Comcast bundled DVR into Comcast's (CMCSK) core digital sub base.

• Matrix downgraded Circuit City Stores (NYSE: CC) to Strong Sell from Hold as the firm believes increasing competition is leading to lower selling prices and decreasing profits.

• BMO Capital cut AutoZone (NYSE: AZO) to Underperform from Market Perform on expectations that higher gas prices will be a drag on discretionary product sales...

OTHER DOWNGRADES:

• Goldman added Applied Materials, Inc (NASDAQ: AMAT) to its Americas Conviction Sell List.

• Oppenheimer downgraded Federated Department Stores (NYSE: FD) to Neutral from Buy.

• STEC, Inc (NASDAQ: STEC) was cut to Neutral from Buy at Merrill Lynch and to Sector Perform from Outperform at CIBC after weak Q1 results.

• Boyd Gaming Corp (NYSE: BYD) was cut to Market Perform from Outperform at BMO Capital.

• Baird downgraded Amgen, Inc (NASDAQ: AMGN) to Neutral from Outperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: National Semiconductor Corp (NSM), Seagate Technology (STX), Adolor Corp (ADLR), Conexant Systems, Inc (CNXT) and Blyth, Inc (BTH) were today's noteworthy downgrades:

• Matrix downgraded National Semiconductor (NYSE: NSM) to Buy from Strong Buy because inventory oversupply conditions have dissipated more rapidly than expected. Matrix believes National Semi will see price stability and orders increase as excess products continue to move through the supply chain.
• Needham cut Seagate Technology (NYSE: STX) to Buy from Strong Buy following the company's lowered guidance as the firm believes margin improvement has been "temporarily derailed"; however, the firm believes valuation limits downside at current levels.
• Adolor Corp (NASDAQ: ADLR) was downgraded to Market Perform from Outperform at Friedman Billings, to Neutral from Outperform at Cowen, to Neutral from Buy at First Albany, to Sell from Hold at Citigroup and to Hold from Buy at both American Technology and W.R. Hambrecht, after reporting additional safety issues related to Entereg.
• Elsewhere, Roth Capital downgraded shares of Conexant Systems Inc (NASDAQ: CNXT) following lowered Q2 guidance and cited weakness in end markets and lack of near-term catalysts.
• Stanford cut Blyth, Inc (NYSE: BTH) to Sell from Hold on valuation.

OTHER DOWNGRADES:

• Matrix cut Nike, Inc (NYSE: NKE) to Hold from Buy.
• Goldman took Microsoft Corp (NASDAQ: MSFT) off its Conviction Buy List.
• JP Morgan took CSX Corp (NYSE: CSX) down to Neutral from Overweight based on valuation.
• Prudental downgraded Groupe Danone (NYSE: DA) to Neutral from Overweight.
• ASML Holding NV (NASDAQ: ASML) was downgraded to Market Weight from Overweight.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Some of today's notable upgrades were Apple Inc (AAPL), Comcast Corp (CMCSA) and Crosstex Energy LP (XTEX):

• Apple Inc (NASDAQ: AAPL) was upgraded to Overweight from Neutral at Prudential and raised their target to $105 from $100 after their checks indicated a late March launch of Leopard, which is sooner than expected. Prudential believes Leopard will serve as a catalyst for Mac sales.

• Matrix USA upgraded shares of Comcast Corp (NASDAQ: CMCSA) to Hold from Sell as they believe the successful roll out of "triple play" product offering is driving sales growth.

• Crosstex Energy LP (NASDAQ: XTEX) was upgraded to Neutral from Underperform at Credit Suisse based on valuation.

OTHER UPGRADES:

• Citigroup upgraded shares of Seagate Technology Holdings (NYSE: STX) to Buy from Hold on valuation as they believe Friday's sell-off on concerns that Apple will use NAND Flash rather than disk drives in the next-generation video iPod was overdone. Citigroup doubts Apple will broadly move to NAND flash this year.

• Jefferies upgraded shares of Universal Health Services Inc (NYSE: UHS) to Buy from Hold with a $67 target as they believe industry fundamentals are strong for behavioral health and the valuation is attractive at current levels.

• Brean Murray upgraded shares of Scientific Games Corp (NASDAQ: SGMS) to Hold from Sell. The firm does not expect Scientific Games to hit its 2008 guidance of $2.00, but recognizes the long-term growth prospects should begin to flow to the bottom line.

• Credit Suisse upgraded the Chicago Mercantile Exchange Holdings Inc (NYSE: CME) to Outperform from Neutral on valuation.

• Baird upgraded Thomas Properties Group (NASDAQ: TPGI) to Outperform from Neutral.

• Bear Stearns upgraded Group Danone ADS (NYSE: DA) to Outperform from Peer Perform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).