NEW YORK ( TheStreet) -- The starting gun of the first earnings season of 2013 has been fired, and as usual Alcoa ( AA) leads the way. Alcoa reported earnings of 11 cents per share, beating not only analysts' consensus amount of eight cents, but also beating the whisper number of 10 cents. Investors were still not impressed based on the shares falling below the closing price in after-hours trading. Unfortunately, without an improving economy, the shares may have more to fall. Investors instead focused on shrinking revenue and expected lower aluminum prices. Net income was $149 million, a marked improvement from the loss produced in the same quarter last year. Still, not overly impressive for a company with a market cap of nearly $9 billion. Based on current earnings with Monday's closing price, Alcoa is continues to trade at a relatively high price to earnings multiple above 20. For comparison, the S&P 500 ETF ( SPY) trades at an average multiple of 18, and bellwether General Electric's ( GE) P/E is 17.9, but pays a 3.3% dividend, more than double that of Alcoa. The Street's Richard Saintvilus thoroughly spelled it out in his earnings preview article
Will Alcoa's Aluminum Shine for Investors? . Saintvilus is correct about Alcoa testing investor patience and fortitude. There is only so much a large industrial can do during economic downturns. The recent jobs report, too many to ignore anecdotal reports of businesses adjusting in front of the Affordable Care Act implementation, and entitlement reform, leave little doubt that hopes of a rapidly improving U.S. economy will be difficult to fulfill. Asia is a net positive for Alcoa and the world economy, but as long as China remains the "factory to the world" more than a consumer nation, there is only so much China can add. Alcoa doesn't appear to be sitting around waiting for the world economy to fix its earnings problems, either. It's not all grim news though, Alcoa is predicting demand growth of seven percent globally.
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.
At the time of publication the author held no positions in any of the stocks mentioned. Follow @RobertWeinstein This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.