High Hopes Abound Ahead of Alcoa Inc (AA) Earnings

Alcoa Inc (AA) call options have been popular, leading into the company's earnings report

Alex Eppstein
Oct 10, 2016 at 12:16 PM
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The unofficial start to earnings season is just around the corner, with aluminum giant Alcoa Inc (NYSE:AA) slated to report tomorrow morning. Below, we'll take a closer look at the stock's past performances following earnings, and what the options market is expecting this time around.

Diving right in, AA stock has historically struggled in the aftermath of earnings. Specifically, the shares have ended the session adjacent to the quarterly event lower six of the last eight times. On the bright side, following July's report, the stock soared 5.4%. This time around, the options market is pricing in an even bigger swing of 7.2%, in either direction.

If options traders have their druthers, AA will break to the upside after earnings. According to data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than three times as many calls as puts during the past two weeks. What's more, the resultant call/put volume ratio of 3.42 ranks only 6 percentage points from an annual peak.

Underscoring this call focus is Alcoa stock's Schaeffer's put/call open interest ratio (SOIR). At 0.35, this SOIR indicates calls nearly triple puts among options expiring in the next three months. Not to mention, the ratio registers in the low 18th percentile of its annual range.

On the charts, Alcoa Inc (NYSE:AA) is up 0.2% today at $31.44, and is a solid 6.2% higher on a year-to-date basis. That said, the shares are quickly approaching the $32-$34 area, which has rejected the stock several times in 2016. In the best-case scenario for option bulls, AA will gap above this troublesome zone tomorrow, and make a run at its annual high of $34.50, notched in late April.

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