Upside option trades in Alcoa are yielding huge gains ahead of its earnings report this week.
On June 27, Investitute’s proprietary programs detected the purchase of 20,000 July $36 calls for $0.35 to $0.40 with shares at $32.03. Open interest in the strike was only 733 contracts before the trade occurred, showing that it was a new position.
Those calls sold for $1.45 today, quadrupling in value. The stock rose 14.4 percent in the same time frame, underscoring the kind of leverage that can be achieved through options. It was the second winning trade in Alcoa posted in the last two weeks.
Long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.
China’s aluminum product jumped last month, fueling predictions that President Trump will act on trade tariffs or quotas that he threatened to impose last week. His comments triggered a rally in U.S. steel makers, and today aluminum producers traded higher as well.
AA was up 0.22 percent to $36.40 today, ahead of its quarterly results on Wednesday after the close. On CNBC’s “Halftime Report” this afternoon, Investitute co-founder Pete Najarian cited another bullish trade in Alcoa’s August calls today.