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.
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