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A Quick Look into Alcoa Earnings

AA officially kicks off the earnings season tonight with its report. While I don't think this is the bellwether that traders make it out to be, there's some interesting developments in the name that could be worth a look-- or maybe a trade.

Technically, AA has been in a base for the past few months and finally cleared resistance at 11.75. Since then it's been building a smaller base into earnings.

Now there are specific points of interest here. First, AA announced a dividend on October 1st, signaling things may not be going so poorly fundamentally as what has been reflected in the market technicals.

There was a pretty large trade that went contrary to the pattern of AA earnings. Normally, selling volatility is a profitable trade pre-earnings. For the past 4 events, if you had sold straddles going into earnings you would have been profitable the day after. But there was one trader who is willing to take the other side.

Yesterday afternoon a trader came and bought 5900 Nov 12 straddles on the AMEX. This is a bullish volatility bet, where the trader is expecting a faster move than what the options are pricing in. As the current price of the stock is above the strike price, this is a net long trade. Considering selling this has been the easy trade, it's definitely worth a look to see if they will be right post earnings.

The risk/reward on this trade is a little better, as the current IV readings are the lowest they've been going into an earnings event.

Source: livevol.com

If you want to learn how to synthesize this information into a tradeable edge, check out my video course at EarningsTrades.com. And of course IWO subscribers will probably pick up a trade going into the earnings event.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/