Choosing which specific option to buy is often a complicated process, and there are literally hundreds of optionable companies out there to choose from. Credit Suisse, feeling apparently a bit generous today, decided to give investors free advise by recommending they trade Alcoa Inc. (NYSE:AA) options to bet that the biggest U.S. aluminum producer will rally after reporting its earning tomorrow. The co. is forecast to report a Q3 loss of 9 cents a share, according to Bloomberg.
Credit Suisse’s Sveinn Palsson, a derivatives strategist, recommends buying Alcoa’s January $14 calls while selling January $17.50 calls.
“The sentiment in the option market ahead of earnings is more positive,” New York-based Palsson wrote. Implied volatility for Alcoa calls that are a month from expiration is 2.3 points higher than the same figure for puts, the biggest difference in more than a year. That suggests options traders are optimistic about the company.
Alcoa, which was raised to Buy from Hold on Oct. 1 at Deutsche Bank AG, is the first company in the Dow to report results for the third quarter.
In terms of co. statistics: As of Oct. 6, the AA’s profit margin stands at (-8.90%), followed by (-2.00%) in operating ones. ROA trailing 12 is at 0.67% negative ; ROE is at (-9.33%) ; current ratio 1.47. The company has $850 million in cash on $10.2 billion of debt. Levered free cash trailing twelve is negative $1.6 billion.
Alcoa shares are up 33 cents, or 2.46% to $13.79 at 2:10 p.m. in NYSE trading.