Shares of aluminum processor Alcoa Corporation (AA) have been moving steadily higher over the past year amid a booming commodity market. One trader sees that trend continuing into the first half of next year.
That’s based on the June $55 calls. With 249 days left before expiration, over 6,525 contracts traded against a prior open interest of 161, for a 41-fold rise in volume. The buyer of the calls paid $5.13 to make the trade.
Shares have traded as high as $52.50 before a recent selloff, so the strike price of $55 on the calls is aggressive, but likely given the amount of time left on the trade.
Alcoa shares have risen 270 percent in the past year, and thanks to rising aluminum prices, the company has seen shares boom with revenues up 32 percent while still trading at an attractive 9 times forward earnings, and just under 1 times the company’s price to sales.
Action to take: While commodity prices may slow down their appreciation, the growing global economy points to continued demand, so a significant pullback in aluminum prices is unlikely for some time. Investors can simply buy shares, although the company has not paid a dividend for five years.
Traders may like the call options. They have plenty of time to play out, and will still have a considerable amount of time left on the trade following the holiday season, which tends to be bullish for stocks. That could give buyers plenty of opportunities to sell on the way up, such as if shares move in-the-money.
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 of the companies mentioned in this article.