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  • Alcoa Options Activity Heading Into Earnings AMC 0 comments
    Jan 8, 2013 3:17 PM | about stocks: AA

    If we take a look at Alcoa's stock performance after earnings the past 8 quarters, we can see that it has started earnings season off with negative performance 6 times. The average move has been about 3.2%. Looking through the spread data for AA, we see that the short straddle and short strangle have been profitable 70% and 95% of the time respectively.

    (click to enlarge)Alcoa Options Earnings Data

    Alcoa is currently trading at $9.11 with the $9 straddle trading at $0.37-$0.39 and the $9.50C-$9P strangle trading at $0.19-$0.21. Given Alcoa's recent disappointments after earnings and the stock hovering near the $9 strike, selling the $9 straddle for about $0.38 looks like a good trade. The trade will be profitable between $8.62 and $9.38, with losses accruing if the stock breaks through those prices.

    Although the strangle is a higher probability trade (95%), collecting only $0.19-$0.21 doesn't seem worth it in light of the stock's recent price action after earnings.

    Trading has been alight leading into earnings. No big trades on record so far today or this week. This can be seen as another indication that the stock is expected to move less than the 3.2% average.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AA
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