CENX Options Bulls Win Big on Aluminum Stock Rally

The CENX call option hit its target profit not even one month after the bullish rec went out

by Karee Venema

Published on Jan 18, 2018 at 1:52 PM
Updated on Jun 24, 2020 at 10:16 AM

Subscribers to Schaeffer's Option Advisor service recently doubled their money on our Century Aluminum Co (NASDAQ:CENX) March 16, 2018 16-strike call recommendation. Here's a closer look at why we became bullish on CENX stock, and how the winning options trade unfolded.

When we recommended the call option in late December, shares of the aluminum services name had recently pulled back to their 320-day moving average after notching a two-year high in September. The stock subsequently bounced from this rising trendline, sending it back above the $17 level -- twice its 2017 closing low, and a 100% year-to-date (YTD) gain. The fact that profit takers did not emerge when CENX surpassed the level that represented a 100% YTD gain hinted at a still strong underlying bid for the shares, despite the strength in recent weeks.

The outperforming equity was surrounded by skepticism, too, which pointed to ample sideline cash to help push CENX shares even higher. For starters, its Schaeffer's put/call open interest ratio (SOIR) was docked in the elevated 82nd percentile of its annual range, meaning short-term options traders were more put-heavy than usual. Plus, nearly 20% of Century Aluminum's float was sold short. A capitulation from some of these weaker bearish traders could create tailwinds for CENX.

The security was also poised to benefit from a round of upgrades. At the time of our recommendation, the majority of analysts following CENX maintained a lukewarm "hold" rating.

Century Aluminum stock gapped higher on Thursday, Dec. 28, brushing off a downgrade at Deutsche Bank, to rally alongside Alcoa (AA) after Credit Suisse forecast a tightening aluminum market in 2018. This momentum continued into the new year, with CENX topping out at a nearly three-year high of $22.30 on Friday, Jan. 12 -- the day we closed our position at a 100% profit.

cenx stock daily chart jan 18


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