While energy prices are way up. Energy accounts for 45% of aluminum-production costs. Prices are also up for caustic soda, which represents 12% of alumina-production costs,
All of this means Alcoa's stock may decline when the company reports second-quarter earnings on July 8. Already Goldman Sachs' options strategists are advising clients to buy defensive Alcoa puts. They think Alcoa's stock may decline because of the impact of high energy prices, a negative earnings-per-share impact caused by an explosion at a supplier's facility, and fading takeover speculation.
For details of Technical Analysis please visit my blog at :
http://conquerthewallstreet.blogspot.com/2008/06/options-trad...
There is a potential pullback of AA but it might be just for a temporary movement. Stocks usually move in the sideways direction ahead of its earning. According to its nearest support and resistance lines, I expect AA will move in a range between $34 to $39 before its earning release.
When Alcoa's stock was at $39.45, the strategists recommended investors to buy Alcoa's July $37.50 puts for $1.70. If you like the reasoning behind the recommendation, you can still implement the trade but wait until AA reaches its sweet spot and it's better for you to consider a put in OTM (Out-Of-the-Money).
$35.5 (06/30/08)
