Puts are trading at 11 times their normal rate today in
) options pits, with about 30,000 puts total having changed hands
so far. More than one-third of that action has taken place at the
October 7 strike, where over 10,000 contracts have crossed the tape
in a series of mid-to-large-sized blocks.
All of the AA options traded at the ask price, suggesting they were
bought. With implied volatility up 3 percentage points, and open
interest of roughly 6,200 contracts at the strike, it's safe to say
the bearish bets were freshly initiated at volume-weighted average
price (VWAP) of $0.06.
Therefore, in order for the traders to profit, Alcoa shares must
dip to $6.94 (strike price less the VWAP) -- a significant move,
considering the stock is currently trading at $8.06 -- by October
options expiration. If the slide doesn't materialize, however, the
most the speculators have at stake is the modest initial premium
Another large block of puts at the January 2014 7 strike recently
crossed the tape, trading at the ask price of $0.20 per contract.
This particular speculator is allowing a little more time for AA to
make a downward move, as the stock has more than five months to
breach breakeven of $6.80 (strike price less the premium paid).
The attention being paid to puts over calls is nothing new for AA.
According to data from the International Securities Exchange (ISE),
Chicago Board Options Exchange (
), and NASDAQ OMX PHLX (PHLX), the stock shows a 10-day put/call
volume ratio of 0.76. That ratio is just 8 percentage points shy of
an annual acme, which suggests traders have been scooping up puts
relative to calls at an accelerated clip over the past two weeks.
Elsewhere, Wall Street is bearish on the
(INDEXDJX:.DJI) component. Just five out of 14
rate AA a "buy" or better, compared to six "holds" and three
"strong sell" recommendations. Additionally,
now makes up more than 10% of the aluminum producer's outstanding
float, which represents nine days' worth of buying demand, at
typical daily trading volumes.
That the winds of pessimism are swirling around Alcoa is no
surprise. Technically, the equity has had a less-than-spectacular
run, down close to 7% year-to-date. What's more, the stock is
running into a potential layer of resistance at its 20-week moving
average, which rejected a short-lived rally in May and capped
upside in the shares last week.
This article by
was originally published on
Schaeffer's Investment Research
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