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Most Active Options Update: Alcoa Inc (AA)

Option bears turn out ahead of Alcoa Inc's earnings report

by 4/8/2014 12:49 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Alcoa Inc (NYSE:AA).

Most

All eyes are on Alcoa Inc this afternoon, as the aluminum giant prepares to tell all in the earnings confessional after tonight's close. Ahead of the event, puts are trading at more than two times the average intraday pace, and traders appear to once again be bearishly positioning themselves before tonight's big reveal.

Near-term put players are specifically targeting a post-earnings move south of $12, as the equity's weekly 4/11 12-strike put has emerged as the most active contract today. A healthy portion of the 6,671 contracts traded at this out-of-the-money strike has done so on the ask side, implied volatility is 13.8 percentage points higher, and volume is outstripping open interest, hinting at the initiation of new bearish positions. Data from the International Securities Exchange (ISE) confirms that some of the activity at this strike is of the buy-to-open variety.

The goal for initiating these long puts is for AA to retreat roughly 4.7% from its current perch at $12.59 to breach the strike price by week's end. Should the equity maintain its foothold atop $12, the most option traders stand to lose is the initial premium paid. However, scheduled events such as earnings can often inflate option premiums, and according to AA's Schaeffer's Volatility Index (SVI) of 45% -- which ranks near the top end of its annual percentile -- the security's near-term options are relatively expensive at the moment.

From a technical standpoint, this skepticism among option traders runs counter to AA's longer-term prowess, with the shares up nearly 61% from their Oct. 3 low of $7.82. Helping to usher the equity higher has been its 40-day moving average, and a quick bounce off this trendline in mid-March pushed AA to a two-year peak of $13.18 one week ago today.

As noted, Alcoa Inc (NYSE:AA) will unofficially kick-start first-quarter earnings season after tonight's close. Despite matching or exceeding analysts' bottom-line estimates in seven of the past eight quarters, the stock averages a loss of 0.8% in the subsequent session. Consensus estimates are for a per-share profit of 5 cents for Alcoa's first quarter -- a roughly 55% drop from the company's year-ago results.


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