This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Alcoa Beats on EPS but That May Not Be Enough

Stocks in this article: AA SPY GE

Alcoa is hard at work making the best of the situation. Aluminum market prices fell 8% while Alcoa managed to hold on to 97% of revenue. Special items filled the earnings report with both positives and negatives. Asset sales, insurance proceeds, favorable tax treatment and reductions in European production made for an interesting spreadsheet on my computer, but in the end, it still boils down to the economy. The impressive tax rate for the quarter was about 27.4 percent.

OK, so the earnings report was less than stellar, albeit better than some feared, now what? How do we take Alcoa's earnings report and turn it into profit we can put in our pockets? For those familiar with my trading methods, it will not be a surprise I will go straight to the option chains to seek opportunity.

If I am a long term investor, and Alcoa enjoys the stability of many long term shareholders, I want to sell far out of the money calls with little likelihood of being exercised. For example, The June $10 strike calls may be sold for about seven cents. If Alcoa moves higher into the expiration date, simply buy the contracts back and roll over to the relevant expiration and strike price. The primary concept is protecting capital through selling Theta (option premium/time decay) until the economy shows signs of picking up and improving.

Those that want to gain exposure with Alcoa can sell June $8 puts for around 63 cents, resulting in a cost basis of $8 per share less the premium collected if the shares are put to you. The cost basis will be $7.37, but you can also immediately sell a call against the shares, bringing your cost basis to perhaps $7 a share with just as much upside potential as you started with.

For longer term stock positions, options are almost mandatory if you want to control risk and use the never ending ticking clock to enhance your returns. Maybe you're not totally comfortable with options math, or the best strikes and expiration dates that are most advantageous. Say hello to author Scott Nations through Wiley Publishing. Nations produced a remarkable options book titled "Options Math For Traders". I give the content and ease of reading both two thumbs up. You can't go wrong putting a copy in your hands to read. The cost of the book is much less than if you make an avoidable mistake because you didn't read it.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs