Alcoa Call Options Active as Stock Surges With Aluminum Prices

Nork Hydro's refinery closure is boosting AA shares

Managing Editor
Oct 3, 2018 at 10:25 AM
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Shares of Alcoa Corp (NYSE:AA) are soaring in early trading, last seen up 8% at $45.07. The stock is rising in step with aluminum prices, which are higher after Norsk Hydro halted production at its Alunorte refinery in Brazil. What's more, AA call options are flying off the shelves this morning.

Today's bull gap is a welcome surprise to Alcoa stock, which has been in a channel of lower highs since its mid-April record peak of $62.35. Pressuring the shares has been their 60-day moving average, though the stock is on pace to topple that trendline today.

In early trading, AA has seen roughly 16,000 calls change hands -- 11 times the average intraday pace. Meanwhile, just over 1,600 puts have traded. The current put/call volume ratio of 0.10 is on pace for an annual low.

Most of the action has transpired at the November 43 and 48 calls, where it looks like one speculator may be cashing in the lower-strike calls to buy twice as many higher-strike calls. If so, the trader expects AA to topple $48 by November options expiration.

Digging deeper, today's appetite for bullish bets merely echoes the growing trend. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows AA with a 10-day call/put volume ratio of 7.61, ranking in the 89th percentile of its annual range. This indicates that during the past two weeks, calls have been bought over puts at a faster-than-usual clip.

Analysts echo this optimistic outlook, despite Alcoa stock's technical struggles of late. Specifically, 10 of the 12 covering brokerage firms sport "buy" or "strong buy" recommendations. Plus, the stock's average 12-month price target of $58.31 holds a nearly 32% upside to current levels. 

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