Unusual Option Trading in Alcoa (AA) - What's It Mean?

03/10/2010 12:01 am EST


Alcoa (AA) used to be such a boring name, at least until the start of each earnings season when the investment community uses the company as a proxy for industrial activity. However, it is not normal to see the high-low trading range of the past year showing more than 200% gains.

And that's not all that's a bit off with Alcoa these days. We're also seeing some unusual options trading in the stock.

Joe Kunkle of OptionsHawk.com noted that there has been some unusual purchasing of Alcoa call options in recent weeks.

And yesterday, we saw more than 10,000 AA July 14 calls (AA 100717C00014000) purchased. On a fully leveraged basis, those 10,000 contracts equal one million shares if you converted the options to stock.

Click to Enlarge

With those calls trading for a buck and change, we're looking at more than one million dollars in a single options trade. While million-dollar trades in stocks are rather commonplace in today's world, it is not the norm for option trades.

Furthermore, generally speaking, when we see traders making bets like this, we see it in the front months. The trade might not be in the March calls, but it would be more typical to see this kind of action in the April calls, considering that earnings season will have already begun before the April 16 expiration date, and with Alcoa listing its earnings date as April 12.

There have also been more than 4,500 calls traded across other various strike prices for April, as well as increased activity in the March options, where we have seen 6,000 calls trade.

But back to the AA July 14 calls. If this option is held all the way up to expiration, Alcoa has to rise to $15.25, or thereabouts, for any money to be made when you factor in commission costs.

Given this, I'd say someone is making a large bet on continued economic recovery or resumption in the recovery.

By Jon Ogg, contributor, OptionsZone.com

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on OPTIONS

Keyword Image
Collar Hedging Strategy
01/28/2019 12:38 pm EST

Jay Soloff, who is presenting at MoneyShow Orlando Feb. 7-8, describes a no-cost collar strategy and...