Alcoa Inc (AA) Down on Options Activity, Will Rise Again

Alcoa Inc (NYSE:AA) has taken a nearly 2% tumble in trading today, after reaching its highest levels this week since its collapse six years ago at the height of the financial crisis. According to analyst Pete Najarian on CNBC today, the drop is likely only a temporary dip in the stock’s upward momentum.

“If you look at the year-to-date, look at the run that this stock has made from here, close to $10, all the way up over $17, and now it’s recently pulled back. You look over the last three months though and you can see something else; look at how it’s been able to hold on, I’m not showing right now the 50 and 200 day moving averages, but holding on to those averages as well,” Najarian said.

Alcoa Inc (NYSE:AA)’s stock has both put and call options on it, and the activity on these options can be good indicators as to the overall sentiment surrounding the stock. A put contract with a strike point of $15 and a call contract with a strike point of $20 are out on the stock, and as Najarian said, activity on the call contract has been high, from himself included. In fact that call volume on Alcoa Inc (NYSE:AA) has been nearly twice as high today as the put volume.

“And then today, the January calls, the January 19 calls are being bought in a big way. It happened very early in the day, January 19 calls, over 10,000 were bought. It was spread against, in other words selling upside calls, selling the GM 21 calls, this whole trade cost $0.22 and that’s what they’re looking for upside through 19, but you’ve got multiple months for this to play out,” Najarian said.

Alcoa Inc (NYSE:AA) announced on Thursday that it was awarded a $1 billion contract by The Boeing Company (NYSE:BA) to supply them with aluminum products. Alcoa Inc (NYSE:AA) has benefitted from a strengthening aluminum industry at the same time as some of their rivals have recently reduced their exposure to aluminum and become less competitive.

Disclosure: none