After a large percentage run up in the stock, Alcoa reported earnings last night. The earnings seemed to beat on the bottom line and avoided any major surprises in future guidance. Not too surprising it appears as if the market is “selling the news” today.
Currently the portfolio has one lot of stock covered with a $15 Jan call.
It seems very likely the stock will be called away at that level next week.
That means it it is also time to review this holding and see if it should remain as a core holding. One of the key metrics to determine when to buy the stock was that it was trading under book value. More research will be required to see where the stock relates to book value after this last reporting period.
In the mean time, with earnings announcement complete the volatility has been reduced but not totally eliminated from this stock. It seemed like solid earnings provides an opportunity to take advantage of the remaining volatility and timed decay
Hence, I sold the Jan $16 put for .20 cents today to deploy the second lot of capital allocated to this position.
Best Case the stock will stabilize at this level or rise for the next week and a half and this trade will yield a quick 1%. If this occurs all lots will have been sold and the portfolio will be totally out of AA. As discussed above a re-analysis will need to be done to see if a new position should be initiated when the price is over $16. Initial thoughts is at those prices it may be time to move on to other opportunities.
Middle Case – the stock settles between $15 and $16. One lot will be called away and one lot assigned with a cost basis of $15.80.
Worse Case – the stock falls below $15 in the short term. With the earnings announcement complete this 8% down scenario seems unlikely but anything is possible.
In either of these final two situations occur the likely next course of action is to play for a bounce back to recent highs and sell $16 calls.
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