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Option Clips: Alcoa Inc, Cliffs Natural Resources Inc, and Vale SA

Reviewing notable options activity on Alcoa Inc, Cliffs Natural Resources Inc, and Vale SA (ADR)

by 1/29/2014 2:03 PM
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Three equities drawing attention from options traders today are commodity concerns Alcoa Inc (NYSE:AA), Cliffs Natural Resources Inc (NYSE:CLF), and Vale SA (ADR) (NYSE:VALE). Here's a look at how traders have been aligning their speculative bets today.

  • Alcoa Inc (NYSE:AA) is bucking the broad-market trend lower, up 2.6% at $12.15. Both analysts and option traders are waxing optimistic on the stock, with Stifel lifting its price target to $14 from $11 this morning. Meanwhile, AA has seen roughly 61,000 calls cross the tape so far today -- a 49% mark-up to its average intraday call activity. Traders are gambling on more short-term upside for AA, which has outperformed the broader S&P 500 Index (SPX) by 25 percentage points in the last 60 sessions. Specifically, the weekly 1/31 12-strike call and February 13 call are most active, with around 10,600 and 12,500 contracts traded, respectively. Most of the calls crossed on the ask side, volume has outstripped open interest at the 12 strike, and implied volatility on the February 13 call is 6.2 percentage points higher -- hinting at newly bought bullish bets.

  • Cliffs Natural Resources Inc (NYSE:CLF) is 3.6% higher at $20.53, bringing its week-to-date gain to 6.2%, as investors continue to mull Casablanca Capital LP's spin-off recommendation. Nevertheless, speculators are scooping up CLF puts at a faster-than-usual clip today, with about 20,000 contracts traded so far, compared to the average intraday volume of around 13,000 puts. Traders are buying to open the weekly 1/31 20-strike put, with more than 5,600 contracts exchanged -- mostly at the ask price. Plus, volume has topped open interest, underscoring our theory of fresh bearish bets. By purchasing the near-the-money puts to open, the buyers expect CLF to backpedal south of $20 by Friday's closing bell, when the options expire.

  • Vale SA (ADR) (NYSE:VALE) is up 3.1% at $13.60, though the shares are still sitting on a year-to-date deficit of more than 10%. In fact, the equity has underperformed the SPX by more than 19 percentage points over the last three months, and remains trapped beneath its 20-day moving average, which has acted as resistance since November. Still, calls are the options of choice today, with about 25,000 contracts exchanged -- nearly twice the intraday average. Speculators appear to be buying the out-of-the-money March 15 call, which leads the pack with almost 10,900 contracts traded. Most of the calls crossed on the ask side, and implied volatility is trending higher, at last check. However, short interest represents nearly a week's worth of pent-up buying demand, at VALE's average pace of trading. Against this backdrop, it's possible that the shorts are picking up the calls in order to hedge their bearish bets.


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