3 Stocks to Watch: Alcoa, Petroleo Brasileiro, and Sprint Nextel Corporation

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Today's column includes a look at a rise in call trading on Alcoa ( AA ), Petroleo Brasileiro ( PBR ), and Sprint Nextel Corporation ( S ). Each day, 3 Stocks to Watch focuses on stocks seeing heavy options trading and gives you a unique insight into each stock's sentiment backdrop.

Alcoa ( AA )

Options traders jumped on the shares of Alcoa Inc. ( AA ) on Tuesday, as more than 212,700 contracts crossed the tape. This surge in volume was more than four times the stock's average daily trading volume of 49,992 contracts, according to data from WhatsTrading.com. In addition, approximately 63% of the volume changed hands on the call side. Traders may be gearing up for next week, when Alcoa's quarterly report will kick off the earnings season.

Meanwhile, AA puts have been popular on the International Securities Exchange (ISE). The stock's 10-day put/call volume ratio comes in at 0.64, which is higher than 64% of the readings taken during the past year, pointing to a rising pessimism.

What's more, the Schaeffer's put/call open interest ratio (SOIR) for AA comes in at 0.70, which is higher than 85% of all those taken during the past 52 weeks. In other words, short-term options players have been more skeptically aligned toward the shares only 15% of the time during the past 12 months.

Short sellers are adding to their bearish bets. During the most recent reporting period, the number of AA shares sold short increased by 1.05% to 54 million. This accumulation of bearish bets accounts for 5.3% of the company's total float. An unwinding of these pessimistic positions could fuel a significant rally in the shares.

Wall Street hasn't exactly jumped on the stock's bandwagon. According to Zacks , the stock has earned seven "buy" ratings, eight "holds," and one "strong sell." There is ample room for potential upgrades that could add buying pressure to the shares.

Since the beginning of September, the shares of AA have been in a solid uptrend along their 10-day and 20-day moving averages, gaining more than 7% since just the beginning of the week.

 DAILY CHART OF AA SINCE AUGUST 2010 WITH 10-DAY AND 20-DAY MOVING AVERAGES

Petroleo Brasileiro ( PBR )

Petroleo Brasileiro SA ( PBR ) was the center of some brisk options trading on Tuesday, as more than 171,900 contracts changed hands. This jump in volume was more than triple the equity's average daily trading volume of 50,716 contracts, according to data from WhatsTrading.com. What's more, roughly 60% of the volume changed hands on the call side.

Call trading is on the rise on the ISE and Chicago Board Options Exchange ( CBOE ). During the past 50 trading sessions, 3.3 PBR calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 92% of all those taken during the past 52 weeks, pointing to extreme optimism.

In addition, the SOIR for PBR comes in at 0.70, which is lower than 80% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 20% of the time during the past 12 months.

Wall Street also has a slight bullish bias when it comes to PBR. According to Zacks , the stock has earned six "buy" ratings and five "holds."

From a technical perspective, the shares of PBR are attempting break out of their steep downtrend. The equity has jumped above staunch resistance at its 10-week and 20-week moving averages, which had guided the shares lower from December 2009 through December 2010.

 WEEKLY CHART OF PBR SINCE NOVEMBER 2009 WITH 10-WEEK AND 20-WEEK MOVING AVERAGES

Sprint Nextel Corporation ( S )

Options players flocked to the shares of Sprint Nextel ( S ) on Tuesday, as more than 81,200 contracts crossed the tape. This surge in volume was more than double the stock's average daily trading volume of 36,979 contracts, according to data from WhatsTrading.com. Furthermore, traders were feeling somewhat bullish, as 74% of the volume crossed the tape on the call side.

Traders have shown a growing preference for calls on S. During the past two trading weeks, the ISE has seen 7.4 calls purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 62% of all those taken during the past year.

Meanwhile, the SOIR for S comes in at 0.28, as call open interest triples put open interest among options slated to expire in less than three months. This ratio of puts to calls is lower than 88% of all the readings taken during the past 12 months. In other words, short-term options speculators have been more optimistically aligned toward the shares only 12% of the time during the past year.

Short sellers, on the other hand, are slowly adding to their pessimistic positions. During the past month, the number of S shares sold short increased by 1.45% to 132.9 million. This accumulation of pessimistic positions accounts for 4.5% of the company's total float.

Elsewhere, we find that Wall Street maintains a bearish bias toward the shares. According to Zacks , the stock has earned nine "buy" ratings, 15 "holds," and three "sells."

Technically speaking, the shares of S have recently sprung higher with help from their 10-day and 20-day moving averages. The stock is up more than 5% in the last two days, but is facing short-term resistance in the 4.85-4.90 region - an area that has halted the stock's upward progress in the past.

 DAILY CHART OF S SINCE OCTOBER 2010 WITH 10-DAY AND 20-DAY MOVING AVERAGES



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: AA , CBOE , PBR , S

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