Alcoa (NYSE: AA - option chain) shares are rising today on news that the company has increased its price for building and construction common alloy coil products by 2 cents per pound. This could be a sign of stabilizing demand for AA's products. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AA.AA opened this morning at $12.17. So far today the stock has hit a low of $12.17 and a high of $12.50. As of 11:55, AA is trading at $12.48 up 72 cents (6.1%). The chart for AA looks bearish and S&P gives AA a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $9 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in eleven weeks as long as AA is above $9 at October expiration. Alcoa would have to fall by more than 27% before we would start to lose money. Learn more about this type of trade here.
AA has not been below $8.80 (the break-even point for this trade) since May and has shown support around $9.90 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent controls bullish positions in AA.
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