Tuesday, November 23, 2010

Positions - Alcoa (AA) Jan 11 Options

The Nov $14 calls expired completing the November Options trade. In total this trade yielded over 1% from options play in about 6 weeks.

On Nov. 23 after news of Korean hostilities lowered AA's price down to $13, sold the January 11 $12.50 puts for .$51 cents. Price of the stock was just below $13 and implied vol was about 35

Worse case - if the stock falls more will be acquired about a cost $12 which is below book value and at the target acquisition price.

Best Case - Stock stays flat or rebounds staying (above $12.3 200 dma)and the option expires at a profit of approx 4% over 2 months or a 24% annualized return.

Probably case - Stock returns to low $13 and vol drops allowing an opportunity to take profits on a shorter term basis.

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