Earnings season officially kicks off on Monday when Alcoa releases Q4 and year-end results after the market closes. Does Alcoa itself offer a good earnings play?
Being tied to both a commodity and the economy, Alcoa's revenues and earnings have been very irregular:
If we look at the movement of Alcoa's stock over the next 10 trading sessions after Q4 earnings are announced, we see it has sol d off in the majority of years:
Looking closer, and thinking like option traders, we see 6 years out of 11 with movements of around 5% or more. If I see a majority of movements around 5% or more I investigate straddle option trades, which make money if the stock moves strongly in either direction. A straddle trade is where you buy an equal amount of calls and puts at the same strike price and look to sell both sides when the stock has moved enough where the gaining side (call or put) overwhelms the loss on the other side. The key is the stock has to move sufficiently within the lifespan of the options.
However, straddle trades work only when they can be purchased at a value price, in other words, when Implied Volatility is low. Checking Alcoa's Implied Volatility (IV) chart on iVolatility.com, we see that the current IV level of 37.8% is near the top of the past year's range. This means we would likely be overpaying for a straddle.
So this year it looks like we should not try an earnings play on Alcoa's announcement Monday night.
However, we are finding trading opportunities. Yesterday morning we entered two stock trades which are already up 1.0% and 1.9%.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
Copyright (C) 2015 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
The content on any of Market Tamer websites, products, or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options, and other securities involve risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities are not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf). The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.
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