Monday, January 24, 2011

Alcoa (AA) - Vol Spike and CEO Outlook

AA is trading $16.17, up 2.4% with IV30™ up 8.8%. The LIVEVOL® Pro Summary is below.


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Some news this morning:
Jan 24 (Reuters) - U.S. aluminium giant Alcoa expects continuous strong demand for aluminium this year driven by China and other Asian countries, the company's chief executive said on Monday.

"We continue to believe demand is going up, this year we project demand growth of 12 percent," Klaus Kleinfeld told reporters on the sidelines of a conference in Riyadh.

"China will be growing around 15 percent, last year 21 percent, we see a lot of emerging economies strengthening in places like Southeast Asia"...
Source: Alcoa CEO says demand to remain strong in 2011

I found this stock using a custom scan I built searching for names where IV30™ is up at least 10% today. Buy the time I snapped it, the vol was up just below the 10% cut-off. The scan details are below with a snapshot if you want to build it yourself in Livevol Pro.

Custom Scan Details
Stock Price >= 10
Average Option Volume >= 1,200
Days After Earnings >= 5 and <= 60
IV30™ Percent Change >= 10%
IV30™ >= 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.

The AA Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

IV30™: 33.87
HV20™: 26.18
HV180™: 35.03

So the IV30™ is in between the HV180™ (long-term realized) and the HV20™ (short-term realized). It's sort of "fairish." Finally, let's check out the Options Tab.

Possible Trades to Analyze
1. Get long some deltas but be vol neutral in Feb:
Buy the Feb 16/17 call spread for $0.40 buying and selling about the same vol level in a call spread. A MaxGain:MaxLoss of 1.5:1 with already $0.17 in parity.

2. Get long some deltas but be vol neutral in Mar:
Buy the Mar 16/17 call spread for $0.43. This costs just $0.03 more than Feb for another full month of time.

3. Sell the elevated vol in Feb:
Sell the Feb 16 straddle @ $0.98
Buy the Feb 15/17 strangle for $0.32.
Collect $0.66 creating a MaxGain:MaxLoss of 2:1. But, AA has to stay within [$15.34, $16.66] on Feb expo.

This is trade analysis, not a recommendation.

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