Are Fitbit Inc, Alcoa Inc Still in Trouble?

It's not hard to understand why Jim Cramer apologized for recommending Fitbit Inc (FIT) and Alcoa Inc (AA)

by Alex Eppstein

Published on Jan 13, 2016 at 12:55 PM

It's not every day that market pundit Jim Cramer admits he was wrong. Yesterday, however, the "Mad Money" host confessed that he should not have recommended Fitbit Inc (NYSE:FIT) and Alcoa Inc (NYSE:AA) to investors. "We are not in the right moment for speculation. I should have known better and I regret that I wasn't more cautious," Cramer said.

Anyone following stocks knows what a tough time FIT has had. Since topping out at a record $51.90 in early August, the shares have surrendered 61.2% of their value. Things are a bit better today, though, with the stock up 2.8% at $20.12 -- despite emerging concerns over a potential class action lawsuit.

Option bulls are responding to the pop. Specifically, it looks like traders are buying to open FIT's January 2016 21-strike call, hoping the shares will topple $21 by Friday's close, when the series expires. In recent weeks, speculators have preferred long calls over puts at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). FIT's 10-day call/put volume ratio across these exchanges is 1.34, with bullish bets outstripping bearish.

Analysts have taken a sunny-side-up approach, too. Specifically, 70% of brokerages consider Fitbit Inc worthy of a "buy" or better rating. From a contrarian perspective, an unwinding of this positivity among analysts and/or traders could exacerbate the stock's downward momentum.

Meanwhile, AA has been in the bearish spotlight following a lackluster turn in the earnings confessional -- and the stock's post-event losses could bode poorly for the broader market. Specifically, since reporting on Monday night, the shares have shed 8.5% to trade at $7.32 (though they're up 0.5% today).

While shareholders can't be pleased, option traders seem to be much better off. AA's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.75 ranks in the 84th percentile of its annual range. In other words, traders have been buying to open puts over calls at a faster-than-usual clip in recent months.

Today, option writing seems to be popular. Specifically, AA's weekly 1/22 8-strike call may be seeing sell-to-open activity, as traders bank on the $8 level to cap any advances between now and next Friday's close, when the series expires.

Short sellers, too, have been betting against Alcoa Inc. During the last two reporting periods, short interest shot up 20.5% to nearly 140 million shares -- the highest level seen in over a decade.

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