Alcoa Options Active As Volatility Slips
Not many former S&P 500 index components flourish once evicted from the globally renowned benchmark. Yet on this occasion, shares in Alcoa have rallied to multi-year highs having left the bogey. The latest gains come on the heels of earnings in which the company makes the case that global aluminum demand will exceed supply for the first time in many years. Over production among lower-cost Chinese producers has left a global glut of supply. In response Alcoa has spent time and money slashing output across its plants. Shares are up approximately 50% over the past year. Anyone making bullish options plays ahead of Wednesday?s earnings might feel somewhat despondent, however. Most active amongst Alcoa?s option strikes is the April 17 expiration calls where volume of 21,500 has amassed. Incidentally that has been the target of many option traders and the expiry boasts open interest of almost 56,000 contracts. However, as the chart below illustrates, the biggest casualty greeting its well-received earnings report was implied volatility ? a key ingredient to option premium. While its shares rose by 3.0% to $12.90 the implied volatility reading slid by 14% to 30.75%. The impact on the at-the-money call options was a meager gain of just three cents at the 13.0 strike. Meanwhile the 40-cent jump in Alcoa?s share price was about the same value as the slide in premium paid for 13.0 strike puts expiring next week. The premium more than halved to just 31-cents as sellers bailed on bearish plays after earnings.
Chart ? Alcoa volatility slides post earnings
————————————————————————————————————
Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.