3 Stocks to Watch: Arena Pharmaceuticals, Boeing, and InterMune

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Today's column includes a look at a rise in call trading on Arena Pharmaceuticals ( ARNA ) and Boeing ( BA ), while put trading increased on InterMune ( ITMN ). 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.

Arena Pharmaceuticals ( ARNA )

Options trading was brisk on Arena Pharmaceuticals Inc. ( ARNA ) on Monday, as more than 38,300 contracts crossed the tape. This surge in volume was more than 15 times the stock's average daily trading volume of 2,534 contracts, according to data from WhatsTrading.com. In addition, traders were feeling bullish, as 88% of the volume changed hands on the call side.

Calls have been a growing favorite on the International Securities Exchange (ISE). During the past two trading weeks, 45.6 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 94% of all those taken during the past year, pointing to a growing optimism.

Meanwhile, the Schaeffer's put/call open interest ratio (SOIR) is firmly in the bulls' camp. The ratio sits at 0.27, as call open interest nearly quadruples put open interest among options slated to expire in less than three months. This ratio of puts to calls is lower than 92% of all those taken during the past year. In other words, short-term options player have been more optimistically aligned toward the shares only 8% of the time during the past 12 months.

On the other hand, not everyone has jumped on the stock's bandwagon. According to Zacks , the stock has earned 13 "hold" ratings, five "sells," and not a single "buy" rating.

Meanwhile, short interest sits at a lofty 34.7 million shares. This accumulation of pessimistic positions accounts for nearly 29% of the stock's total float and is 11 times its average daily trading volume. Traders may be using some of the aforementioned calls to protect their bearish bets in the event that the security unexpectedly rallies.

ARNA is facing some issues on the fundamental front. A recent class action lawsuit charges that the company did not disclose problems with a planned obesity drug. However, ARNA also has begun testing another drug to treat a rare form of hypertension.

Technically speaking, the shares of ARNA are down more than 32% since the beginning of the year. Following a lengthy consolidation along the 1.50 level under resistance at its 10-day and 20-day moving averages, the shares have shot sharply higher, breaking through resistance.

 DAILY CHART OF ARNA SINCE SEPTEMBER 2010 WITH 10-DAY AND 20-DAY MOVING AVERAGES

Boeing ( BA )

The Boeing Co. ( BA ) is expected to announce further delays with its troubled 787 Dreamliner program, it was reported Monday. BA was the center of some brisk options trading yesterday, as more than 35,900 contracts crossed the tape. This surge in volume was more than double the stock's average daily trading volume of 16,480 contracts, according to data from WhatsTrading.com. What's more, approximately 55% of the volume changed hands on the call side.

Calls are a growing favorite on the ISE when it comes to BA. During the past 10 trading sessions, 2.3 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 97.6% of all those taken during the past year, indicating a growing optimism.

There is ample room for optimism to grow when it comes to the stock's SOIR. The ratio comes in at 1.40, as put open interest outnumbers call open interest among options slated for expiration in less than three months. This ratio is also higher than 73% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 27% of the time during the past 52 weeks. A shift toward the bulls' camp among options players could create fresh buying pressure for the shares.

Elsewhere, we find that Wall Street remains a stalwart supporter of the company. According to Zacks , the stock has earned 19 "buy" ratings and five "holds."

From a technical perspective, the shares of BA are up more than 16% since the beginning of the year. Following the stock's sharp rally from its March 2009 low to its April 2010 high, the security has fallen into a sideways channel between support at the 60 level and resistance in the 72 area.

 WEEKLY CHART OF BA SINCE MARCH 2009

InterMune ( ITMN )

Options players were smitten with InterMune Inc. ( ITMN ) on Monday, as more than 48,500 contracts changed hands. This surge in volume was more than five times the stock's average daily trading volume of 9,336 contracts, according to WhatsTrading.com. Furthermore, approximately 61% of the volume crossed the tape on the put side.

Options trading data reveals a slight bearish bias in the ITMN sentiment picture. Put trading is growing in popularity on the ISE and Chicago Board Options Exchange ( CBOE ). The 10-day put/call volume ratio comes in at 0.40, which is higher than 57% of the readings taken during the past 52 weeks.

What's more, the SOIR for ITMN comes in at 0.76, which is higher than 61% of all the readings taken during the past 52 weeks. In other words, short-term options players have been more pessimistically aligned toward the shares 39% of the time during the past 12 months.

Although short interest dropped by 11% during the past month, more than 5.1 million ITMN shares remain sold short. This accumulation of bearish bets accounts for 13.4% of the company's float and is 8.3 times the stock's average daily trading volume. An unwinding of these positions could fuel a significant rally in the shares.

Finally, Wall Street has its doubts about the firm. According to Zacks , the stock has earned five "strong buy" ratings, seven "holds," and one "sell."

The shares of ITMN have been extremely volatile in 2010, trading as high as $48 and as low as $9. Technically speaking, the shares of ITMN are up more than 174% for the year. The stock shot higher last Friday following news that a European medicines regulator gave a positive opinion on a treatment for idiopathic pulmonary fibrosis, a fatal condition. The stock is now trading well above its 10-day and 20-day moving averages.

 DAILY CHART OF ITMN SINCE APRIL 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.

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.


This article appears in: Investing , Options

Referenced Stocks: ARNA , BA , CBOE , ITMN

Schaeffer's Investment Research

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