Slowly but surely, one investor is apparently becoming convinced
that Alcoa is bottoming out.
optionMONSTER's tracking programs detected the sale of 3,000 April
13 puts for $4.26. An equal number of January 12.50 puts were
bought at the same time for $3.78 but volume was below open
interest in those.
AA rose 1.28 percent to $8.73 yesterday, meaning that those puts
deep in the money
. The aluminum maker has been trading in its current range for more
than a year after crashing in mid-2011.
It appears the investor originally
before that drop, betting that AA would hold its ground. But then
after it fell, he or she rolled the position forward in time to
avoid being forced to buy the shares.
The trader has probably adjusted the position on several occasions,
biding time until the stock rebounds. Given that in-the-money puts
have a close inverse correlation to the share price, they're now
effectively long the stock and will profit on a dollar-for-dollar
basis if AA rallies back toward $13.
While the strategy didn't work out as the investor originally
planned, he or she was able to manage it more effectively thanks to
the flexibility afforded by options. (See our
section for more on how options can help improve the portfolio
AA's option volume yesterday was almost twice its daily
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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