MomentumOptionsTrading.com Midday Update for 7/8/2014
Alcoa (AA) Back in the Spotlight/ Profit Alert (LLNW)!!!
Former Dow blue-chipper, Alcoa (AA, $14.68, down $0.06) will announce their earnings after today’s closing bell. Shares have done well since getting booted from the index on September 20, 2013.
The stock was at $8.29 when Alcoa left the Dow club of 30 and recently traded to a 52-week peak of $15.18 in late June. Not quite a double but close enough for a fine cigar.
The company has beat estimates in 3 of the past 4 quarters. There are 17 Wall Street analysts that cover the stock and estimates are calling for the company to earn a profit of $0.12 a share on revenue of $5.64 billion.
The low estimate is for a profit of $0.09 a share that would equate to a 3-cent miss. The high estimate is calling for Alcoa to possibly earn $0.16 a share for a 4-cent beat.
I have recommended shares of Alcoa in the past for both the Daily and Weekly Wrap over the years and I’m usually more bullish than bearish on the stock. However, I will likely sit on the sidelines as far as taking an earnings trade as there are better candidates later in the week and next to possibly play.
The July 15 calls (AA140719C00015000, $0.24, down $0.02) have traded over 3,000 contracts today while the July 15 puts (AA140719P00015000, 0.57, up $0.05) have traded 500 contracts. While sentiment is bullish, the company will likely have to beat estimates on the high-end and raise current quarter estimates to reach fresh highs. An earnings miss could push shares below $13.
These options together might make a good straddle option trade but shares will need to move 8%-10% to get a decent double-digit profit. In other words, I don’t like the risk/ reward with these options.
I would rather watch the action for clues on market direction instead of rolling the dice with Alcoa right now. Again, better plays are ahead over the next 3 weeks and I’m excited about the prospects of finding a monster winner.
Heading into the second half of trading, the Dow is down 134 points to 16,889 while the S&P 500 is lower by 16 points to 1,961. The Nasdaq is declining 68 points to 4,483 and the Russell 2000 is off 19 points to 1,169.
The S&P 500 Volatility Index ($VIX, 12.40, up 1.07) has cleared 11.50 and I mentioned this morning 12.50 could come into play on a continued pullback in the market. The close will certainly be interesting.
I have updated the current trades and while there isn’t a new trade for now, there could be one or two into the close. I am still doing research and chart work but there are a few candidates I like. Stay locked-and-loaded into the close and if I don’t send out an alert by 3pm today, it means I will likely wait until Wednesday to start new positions.
I do have 2 Profit Alerts on options that are up triple-digits so please read the trade instructions carefully.