Alcoa, Inc. (NYSE: AA)
Alcoa, the multi-national, multi-billion dollar American corporation based in New York City and known for its lightweight aluminum products used in the automotive, aircraft, packaging, construction, and defense sectors of the economy reported earnings after the close on October 8th, 2015 which severely missed estimates and analyst expectations. This sent shares falling fast and furious after it was reported just at the market close. Shares closed at $10.45, or down over 5% in after hours trading. Alcoa is traditionally known for kicking off the next phase of the earnings season. This is when many traders, especially active day traders, like to take positions based on their opinions and assumptions on how good or bad the earnings will be and how high or low the stock shares may go after earnings are released. Later, I will share a trade I placed in anticipation of Alcoa’s earnings today.
Alcoa posted a profit of $44 million, or two cents a share, down from $149 million, or 12 cents a share, a year earlier. Revenue fell 11% to $5.57 billion, weakened by the stronger U.S. dollar and devalued Chinese Yuan. Analysts surveyed by Thomson Reuters had projected 13 cents a share on $5.65 billion in revenue.-Nasdaq.com
The CEO, Mr. Klaus Kleinfeld, said that he was still “very confident” that the commodity business, which will retain the Alcoa name, could flourish as a stand alone company , and said market dynamics suggested that prices could recover next year.
He later added,
“If [the commodity business] looks this good at these prices, then imagine how it will look when we have higher commodity prices.” –Financial Times
I wanted to try and take advantage of Alcoa’s earnings if they should miss or under perform. So I purchased put options which expired in one day, on October 9th. These were weekly options that allow me to take advantage of a big move down if I am correct. I only risked a small amount of money as my management rules permitted. I purchased the October 9th $11 puts which meant I have the right to sell the stock at $11 per share tomorrow. As we can see from the after market close at $10.45, these puts will be in the money and profitable the next day possibly over 100%.
Please see the daily price chart showing the colored rectangle and arrow indicating where I thought the stock may trade after the earnings are released and as of now it seems that will hold true.
About Alcoa, Inc.
Alcoa Inc. produces and manages primary aluminum, fabricated aluminum, and alumina worldwide. The company operates through four segments: Alumina, Primary Metals, Global Rolled Products, and Engineered Products and Solutions. The Alumina segment is involved in mining bauxite, which is then refined into alumina. The Primary Metals segment produces primary aluminum. The Global Rolled Products segment produces and sells aluminum plates, sheets, and foils, as well as rigid container sheets for food and beverage packaging markets. The Engineered Products and Solutions segment offers titanium, super alloy investment, and aluminum castings; fasteners; aluminum wheels; integrated aluminum structural systems; architectural extrusions; and forgings and hard alloy extrusions. The companys products are primarily used in the transportation, including aerospace, automotive, truck, trailer, rail, and shipping; packaging; building and construction; oil and gas; defense; consumer electronics; brazing; power generation; and industrial applications. Alcoa Inc. was founded in 1888 and is based in New York, New York. Yahoo! Finance