Schaeffer's Trading Floor Blog

Two 'A' Stocks on the Move: Alcoa and Apple

Alcoa Inc. (AA) prepares for earnings, Apple Inc. (AAPL) dives lower

by 10/9/2012 12:23 PM
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Option speculators are looking for a win from Alcoa Inc. (NYSE:AA - 9.15) when the company reports earnings after the close today. Many people view this earnings report as the official start to the earnings season, and most analysts are expecting the aluminum company to earn $0.01 per share and generate revenue of $5.572 billion.

Option speculators are quite bullish on the company going into earnings. During the past 10 days on three major exchanges -- the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- more than three times as many calls than puts have been bought (to open). If the company doesn't meet these high expectations, the stock could be vulnerable if these option bulls start to rush the exits.

Most active today is the 9-strike weekly call (expiring on Friday), where almost 9,200 contracts have traded on open interest of under 4,100. The majority of these contracts are going off at the bid price, so some of this volume could be investors closing out long positions ahead of earnings.

The stock has greatly underperformed the broad market since the beginning of this year and the past 12 months. In fact, the S&P 500 Index (SPX) has nearly tripled the return of AA this year.

Meanwhile… surprise, surprise, Apple Inc. (NASDAQ:AAPL - 629.00) is once again trading in the red. The tech giant is down in midday trading once again, looking to extend its losses that started in late September.

While the stock has pulled back about 11% since its Sept. 21 peak of $705.07, its uptrend still remains intact. We are starting to see some of the short-term moving averages crossing below longer-term moving averages, however, which signifies declining upward momentum. Note in the chart below how the 10-day moving average is trading beneath the 40-day for the first time since early June.

Daily chart of Apple Inc. (AAPL) since February 2012

The $640 area was the site of Apple's April peak, which may be a significant price level to watch. Currently, the stock is trading south of this region. It is also important to note that the company is set to report earnings after the market close on Oct. 25.

In the options pits, we are seeing a rush on this week's weekly options contracts, which looks like a mixture of calls and puts (and buyers and sellers). Given the lack of large block trades, this is likely the work of short-term retail traders hoping to capitalize on either further downside or a rebound in the shares.

Here are some additional articles of interest:

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