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Why Alcoa Should Be Your Best Friend (AA, SPY) 1.9.2013

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The lack of volatility and the underwhelming nature of Alcoa has really prevented AA from being an interesting event, but this is exactly why AA earnings is an excellent event to trade. KOTM looked back at the last seven earnings reports from AA and found something interesting. If a trader sold the weekly straddle in AA the day before the earnings report the last seven time times, the total return would have been an impressive 18%! Not bad for just seven trades.

This exercise is simply taking advantage of the underwhelming nature of Alcoa, but clearly this is not a free 18%. The risks to the short straddle are unlimited, for the stock could blow through the short call and move up to infinity; in theory. While Alcoa moving up to $13, no less infinity, in the short term is highly improbable, it is still a risk to the trade and should be noted.

Either way, the data from this little exercise is interesting. The prevailing market media manufactured norm has become a reality, but this does not mean that one should ignore potential catalysts…large or small.

Feel free to e-mail any comments, feedback, suggestions, or general inquiries to…

Author

salernoma@mx.lakeforest.edu

AA Chart

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Morning Rage 10.10.2012

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Alcoa is down twelve cents in pre-market trading today. Dow Futures are down twenty-two and S&P futures are down three quarters of a point. Crude futures are down a quarter of a point and gold futures are up one half of a point.

Earnings movement will continue today with Costco (COST), up almost 3% in pre-market trading. Net sales in the fourth quarter were up 14% from fourth quarter of the year before, with same store sales up 5%. Profits increased by 27% from the previous quarter. Yum! Brands (YUM) announced beating third quarter estimates, up about 23% from the same period last year. The stock is higher by about 4.7%.

Economic reports today include MBA purchase application, which measures new applications at mortgage lenders. Also, US treasury budget report around 2:00pm EST, which can be a predictor of future fiscal policy. The report measures the surplus or deficit of the federal government. 

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Morning Rage 10.9.2012

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Dow futures are up seventeen and S&P futures are up two and a half. Gold futures have moved nine-tenths of a point climbing back over ninety. Metal futures, gold, silver, platinum, are slightly positive before the market opens. 

Alcoa Inc. is scheduled to release its earnings report after the bell today. Alcoa produces and manages aluminum and alumina. The company mines bauxite, which is then rolled into alumina. They also produce and sell titanium and other alloy products.

Alcoa stock ($AA) is up 5.43% since January, with a 52-week low of $7.97 and a high of $11.66. The stock recently hit its ten-day high and put/call ratio is currently 0.85. Earnings have rebounded from three straight misses in 2011 and negative earnings in Q4 to beat earnings in Q1 2012. The projected earnings are $0.06, down $0.04 from the previous quarter. Quarterly revenue has been on a slight decline since Q2 2011 and are projected to be 1.7 Billion less this year than the previous year. 

Alex has a master’s in economics from Suffolk University.

Questions, comments, or suggestions welcome at alexk@keeneonthemarket.com