AA – Alcoa, Inc. – The aluminum producer has experienced a more than 7.5% rally in shares today to $12.66. Commodity stocks rose on reports indicating manufacturing has declined less than previously forecast, in addition to an unexpected increase in spending on construction. Options activity on Alcoa suggests near-term bullish sentiment and medium-term bearishness. Bullish traders targeted the August 13 strike price to buy more than 5,700 calls for 36 cents apiece. Meanwhile, one investor rolled 2,000 call options up from the August 12 strike price by selling the lots for 83 cents, which he then spread against the purchase of 2,000 calls at the higher August 14 strike for 14 cents a-pop. A much gloomier tale was inferred from the actions of bearish individuals in the October contract. The now in-the-money October 12.5 strike has approximately 12,900 calls shed for 1.15 apiece. We note that the call sales could represent the work of investors banking gains due to the existing open interest at the strike of 71,000. However, a similar picture was seen at the October 15 strike where approximately 25,000 calls were sold for 48 cents per contract. The October 15 strike previously had open interest of just 6,900 contracts compared to the more than 30,900 lots which exchanged hands there today. Perhaps call sellers do not see shares of Alcoa rising through $15.00 by expiration. Otherwise, investors could be long shares of the underlying and establishing pseudo-covered calls by shedding the contracts at the higher strike. Finally, the January 2011 5.0 strike price had 18,500 puts trade for 40 cents apiece. We believe it is likely that the investor is closing out a short put position originally established back on May 8, 2009. It appears that the trader sold 18,000 puts for 83 cents and today bought the lots back for 40 cents apiece. If this is indeed the direction of the trade, the investor has banked profits of 43 cents per contract, or a total of $774,000.

KEY – KeyCorp – Shares of the banking services firm have rallied nearly 11.5% higher during today’s trading session to stand at the current price of $6.44. One long-term options bull was observed initiating a call spread in the January 2010 contract. It appears that the investor purchased 4,000 now in-the-money calls at the January 6.0 strike price for an average premium of 1.19 apiece, which he spread against the sale of 4,000 calls at the higher January 9.0 strike for 25 cents each. The net cost of the call spread amounts to 94 cents and yields maximum potential profits of 2.06 if shares can climb up to $9.00 by expiration. The stock must rally 7% higher in order for the investor to begin to amass profits at the breakeven point of $6.94. To attain the maximum profits available, shares of KEY must rally approximately 40% to $9.00 by expiration.

EWZ – iShares MSCI Brazil Index – The Brazil exchange-traded-fund has risen more than 4.5% to $60.39. Option traders displayed diverse tactics on the EWZ today. Some investors locked in gains by purchasing near-term put options in the August contract. About 2,200 puts were picked up at the August 58 strike for 1.40 each, while the higher August 60 strike had 1,000 puts bought for 2.15 apiece. Covered call sellers targeted the August 62 strike price where approximately 10,500 calls were shed for an average premium of 1.48 per contract. Investors purchased the stock for an effective price per share of $58.91 by simultaneously writing the call options. If the August 62 strike calls land in-the-money by expiration investors will have shares of the underlying called from them at $62.00 each. The exit strategy, if employed by expiration, will leave traders with gains of 5% on the rise in the stock. Plain-vanilla bullish call buying occurred at the higher August 63 strike price where about 1,000 calls were scooped up for 93 cents each. Finally, a bearish trader lumbered into the September contract to enact a put spread. It looks as though this individual purchased 5,000 puts at the September 60 strike for 3.47 apiece, and then sold 5,000 puts at the lower September 55 strike for 1.66 per contract. The net cost of the put spread amounts to 1.81. The investor will realize maximum profits of 3.19 if shares decline to $55.00 by expiration next month.