Bull or Bust

a bull's view

ALCOA TRADE ALERT

alcoaALCOA

This company is yet another that has always provided me a warm and fuzzy feeling for reasons unknown. I cannot explain it, but I do know that money can be made with this one. I remember not too long ago during the holidays Alcoa traded as low as $6.88 per share. Those were the days and I wish I had loaded up! Today, it is trading at a more reasonable $9.30 ish.

Alcoa [stock_quote symbol=aa]

UPDATE: APRIL 11, 2016

Alcoa is currently trading at $9.26 and falling hard. Tomorrow (Tuesday) morning will be a great buying opportunity if this continues in pre-market trading before the opening. I would be a buyer anywhere below $9.00 per share!

On Monday, April 11, 2016, Alcoa will report Q1 2016 earnings and I consider Alcoa to be a high-risk, high-reward stock. I agree with Jim Cramer that purchasing AFTER they report is the best way to handle and I cannot wait until Tuesday morning to see where it lands.

If the underlying stock gets hit really hard in after hours trading on Monday I would be willing to purchase actual stock shares especially if they dipped into the $7.00 range.  

Wall Street expects, on average, for Alcoa to earn 2 cents per share on $5.14 billion in revenue, compared to a year ago when earnings were 28 cents per share on revenue of $5.82 billion. Per share profit is down, but 2017 is looking red hot!

PROJECTIONS

Alcoa is definitely a bounce-back candidate at the start of 2017 and estimates are 52 cents per share next year! This is a long way from the current 2 cents and they’re expected to deliver $22.01 billion in full-year 2017 revenue.

I believe the worst is already baked into the current Alcoa stock price and the current 12-month target consensus is $10.61 per share or a very modest 13.23% upside to Friday’s close.

WHAT I WOULD DO?

On Monday I will be watching Alcoa very closely. After the closing bell and after earnings are released I will be watching even closer. If I had the cash currently (which if you’re keeping up I liquidated Friday for the tax man) I would wait for Tuesday morning and if Alcoa sees a dip I would be buying the weakness…

If you want an option trade: I would purchase (as the buyer) the JUNE 2016 9 CALL option @ .75 cents or in that neighborhood. I would set a limit-order for .75 cents before market open Tuesday if the underlying is still getting killed.

If you’re really interested in risk: I would also buy 10 contracts BEFORE they release the report on Monday afternoon JUST in case Alcoa heads North. “Volatility crush” could hurt you on this. Regardless, come Tuesday the option premiums will be less due to the decrease in implied volatility so you are guaranteed to lose money on the JUNE CALL’s if you by them on Monday. However, if Alcoa does tank Tuesday morning I would continue buying this position down in 50 contract increments until I hit 200-300 contracts. Then wait. Worse-case Alcoa is just a hair over $9.00 in June and you exercise 20,000-30,000 shares for $180,000.00 to $270,000.00 in stock.

To hit the .75 cent per contract mark the underlying Alcoa stock will need to dip considerably and IV (implied volatility) will need to decrease, but if the underlying dips to around $8.00 or below I would start scooping up the JUNE 9 CALL for sure no matter what.

CONCLUSION

I would have zero problems owning Alcoa stock for $9.00 per share. Therefore, if Alcoa skyrockets in the coming weeks or months I would definitely exercise this option unless you don’t care to own the stock…you can just take your option gain and exit!

The worst that can happen is Alcoa tank and stay down, but I believe this is just not going to happen. I watched it during the worst market conditions in years and believe this company is going higher long-term…

 

Stock and Option Trading