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Halftime: Should You Believe Alcoa Takeover Hype?

Aluminum giant Alcoa landed front and center on the Fast Money trader radar Tuesday with both interest in the stock as well as options surging during the session due to takeover chatter.

In the options market, buyers were loading up on the $18 strike calls in Alcoa that expire later this month, as well as June $18 calls, explains Fast trader Patty Edwards.

In circumstances involving potential M&A, investors often turn to calls, which grant them the right to call a stock away from the seller at a fixed price any time up until expiration, - in this case the right to call away Alcoa stock from the seller for $18.

"So some investors might be buying these calls on hopes for a takeover announcement in the near future. The May $19, June $19 and June $18 strike calls were also seeing heavy trading," adds Frederic Ruffy, an options strategist at New York-based Web information site WhatsTrading.com.

The interest is largely pegged to speculation that Rio Tinto has secured a $25 billion syndication loan to acquire Alcoa for $25.50/share.

Is this a case of where there’s smoke, there’s fire? Fast trader Joe Terranova doesn’t think so.

”I don’t believe it,” he says. ”Rio is already exposed significantly to aluminum. If you told me it was BHP I might have believed it. But not Rio Tinto.”

And it’s not just Terranova who’s skeptical.

"I don't think aluminum is something Rio wants to double down with now after they purchased Alcan a few years back and probably regret it," says Morningstar analyst Bridget Freas in a Reuters interview. "I think it's a bit inconsistent with their thinking," she adds.

Meanwhile, trader Patty Edwards has also spotted put buying in Alcoa, an options trade she interprets as “doubt on the Street.”

And to throw more water on the fire, Fast Money host Melissa Lee says according to Reuters a senior banker at Santander denied the Spanish bank had secured a loan to finance a potential acquisition.

But that doesn't mean you shouldn't pull the trigger.

Brian Kelly suggests putting the M&A rumors aside and focussing on some fundamentals. He’s bullish Alcoa in the wake of GM’s latest auto sales numbers. “A lot of aluminum is used in cars,” he says.

Trader Steve Cortes is on the other side. He’s bearish metals and mining broadly. He thinks recent weakness in emerging markets is a sign that metals companies are facing trouble.

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GM SHIFTS INTO GEAR

Shares of GM popped back above their IPO price after the car maker said its retail sales were up 25 percent, driven by higher sales for its fuel-efficient Chevrolet compact cars and compact crossovers: the Cruze, Equinox and Terrain.

The Cruze, the compact car that GM introduced last year, is now the second-biggest selling vehicle in the automaker's lineup, behind only its Silverado pickup truck. Cruze sales so far this year are about triple the sales of the car it replaced, the compact Cobalt.

What’s the trade?

Joe Terranova is bullish. "I’m a buyer against $29," he says, the level at which the stock has bounced. Also he suggests a long position in Precision Castparts, even though the stock is currently trading near its 52-week high. "I think it’s a classic example of buy high and sell higher," he says.

Patty Edwards is also constructive in this space but she prefers long PACCAR .

Steve Cortes is on the other side. "We still have massive over capacity in the auto industry," he says. "I’m shortFord . As long as the stock stays below $16 I think it’s heading lower." And Cortes is also shortAmerican Axle, as a related trade.

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ETF FUND FLOWS

In a live report CNBC’s Simon Hobbs explains that investors accelerated their net buying of ETFs and ETNs in April - committing an additional $22.4 billion.

That's twice what was committed the month before, according to data compiled by the National Stock Exchange.

Here’s the breakdown:

51% of the net inflows went into long US equity funds and notes, 31% into long international, 10% long fixed income.

The NSE estimates that there's now 34% more money invested in ETFs and ETNs than last year, a staggering $1.1 trillion dollars, representing 28% of all US equity trades.

As you might expect, the biggest inflows went into largest ETFs.
- $2.7bn into SPDR S&P 500 ETF
- $2.1bn into PowerShares QQQ TrustETF
-.$1.8bn into iShares Emerging Martket Fund ETF
- $1.1bn into iShares S&P 500 ETF
- $1bn into iShares Russell 2000 ETF

But there was a big slow down in to Commodity funds - just $1.1bn in April - after $18bn was committed last year.


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Trader disclosure: On May 3, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns (XOM; Terranova owns (BAX); Terranova owns (SLV); Terranova owns (TCK); Terranova owns (APA); Terranova owns (HOC); Terranova owns (OXY); Terranova owns (UPL); Terranova owns (FCX); Terranova owns (BX); Terranova owns (V); Terranova owns (VRTS); Terranova owns (JPM); Terranova is short (NFLX); Terranova is short S&P Futures; Terranova is Chief Market Strategist of Virtus Investment Partners, LTD;
Cortes owns (CO); Cortes owns (EXC); Cortes owns (GS); Cortes is short nasdaq futures; Cortes is short EEM vs. SPY; Cortes is short F; Cortes i short Euro/Swiss

For Joe Terranova
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of DOMINO'S PIZZA UK & URL PLC
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Brian Kelly
Accounts Managed by Brian Kelly Capital own (AMG)
Accounts Managed by Brian Kelly Capital own (ANBTU)
Accounts Managed by Brian Kelly Capital own (DIA)
Accounts Managed by Brian Kelly Capital own (EBAY)
Accounts Managed by Brian Kelly Capital own (GLD)
Accounts Managed by Brian Kelly Capital own (GDXJ)
Accounts Managed by Brian Kelly Capital own (SLV)
Accounts Managed by Brian Kelly Capital own (JJG)
Accounts Managed by Brian Kelly Capital own (LMT)
Accounts Managed by Brian Kelly Capital own (MS)
Accounts Managed by Brian Kelly Capital own (RVBD)
Accounts Managed by Brian Kelly Capital own (TSN)
Accounts Managed by Brian Kelly Capital own (SU)
Accounts Managed by Brian Kelly Capital are long gold
Accounts Managed by Brian Kelly Capital are long wheat
Accounts Managed by Brian Kelly Capital are long soy futures

For Dan Dicker
*No Disclosures

For Patty Edwards
Edwards owns (AAPL) for clients
Edwards owns (GE) for clients
Edwards owns (GLD) for clients
Edwards owns (HLF) for clients
Edwards owns (MSFT) for clients
Edwards owns (SLV) for clients
Edwards owns (TEVA) for clients
Edwards owns Cognizant Tech CTSH for clients

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