Aluminum producer Alcoa Corporation (AA) is up 11% over the past year but has had some big swings up and down. One trader sees trending higher in the weeks ahead.
That’s based on the May $40 calls. With 63 days until expiration, 10,039 contracts traded compared to a prior open interest of 305, for a 33-fold rise in volume on the trade. The buyer of the calls paid $0.90 to make the bullish bet.
Alcoa shares recently traded for about $33, so the stock would need to jump by $7, or over 21%, for the option to move in-the-money. The strike price is still well under Alcoa’s 52-week high of $47.77.
Operationally, Alcoa has had mixed performance, with revenues up 34%, but no earnings growth over the past year. Shares are a relative value play at less than 9 times forward earnings, and 0.6 times its price-to-sales.
Of course, Alcoa is highly susceptible to making big movements in either direction based on tariff news.
Action to take: Alcoa shares have started to trend higher after a massive downleg lower from 52-week highs. Momentum investors could have a reasonable speculation on shares for a low double-digit return here.
Alcoa also pays a 1.2% dividend at today’s prices.
For traders, the May $40 calls are a reasonable bet for a rebound trade in Alcoa. Given the low price of the option, traders can likely see mid-double-digit returns in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.