Earnings Preview: Alcoa Inc (AA)

Analysts and options traders are bearish on AA before next week's earnings report

Jan 7, 2016 at 2:39 PM
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Aluminum giant Alcoa Inc (NYSE:AA) will report quarterly earnings and revenue next Monday, Jan. 11, unofficially marking the start of fourth-quarter earnings season. After slumping throughout 2015 and hitting a two-year low of $7.81 in November -- shortly after a disappointing October earnings report -- AA has started the new year on rocky ground. The shares are off 16% so far this week, and were last seen down 3.8% at $8.28.

Analysts are unimpressed with AA -- six out of 11 are sitting on ratings of "hold" or worse. Traders have been looking increasingly bearish, too. Specifically, short interest on Alcoa has risen nearly 27% during the last two reporting periods, and now represents 10% of the security's total available float.

Action has been heating up in the option pits lately, too. Today, AA puts are trading at twice their typical intraday rate, with the 21,545 contracts exchanged so far arriving in the 90th annual percentile for daily put volume. Today's preference for puts relative to calls is unusually high; AA's put/call volume ratio of 1.18 is higher than 87% of readings taken in the past year, according to Trade-Alert.

On average, over the last eight quarters, AA shares have notched a one-day post-earnings move of 4%. And, as you might expect, short-term volatility expectations are ramping up ahead of earnings. Alcoa Inc (NYSE:AA) has a Schaeffer's Volatility Index (SVI) of 67% -- in the 98th percentile of its annual range -- with the stock's near-the-money January 8- and 8.50-strike straddles pricing in a move of more than 9%. 


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