Alcoa And Infosys: Earnings Ideas Using Options

These trade ideas were given as written below to subscribers at 11:40 this morning. I have a position in the Alcoa trade #3.

Two names today, one that reports after the close, Alcoa, (AA), and one before the open Friday, Infosys, (INFY).

Alcoa, (AA)


Alcoa, (AA), has been moving higher out of a long base since October. it broke the most recent bull flag to the upside yesterday but is retracing that move as I write this today. The run stopped very near the target from the Diamond break in December. This is also the high resistance point from late 2011 and early 2012.The Relative Strength Index (RSI) is bullish but pulling back from an overbought condition and the Moving Average Convergence Divergence (MACD) indicator is leveling and moving towards a cross down, both suggesting a possible reversal lower in the short run. The bias is lower in the short run, but you cannot ignore the base break on a larger scale. There is resistance higher at 10.70 and 10.85 before 11.65. Support comes lower at 10.50 and 10 before 9.50 and 9.30. The reaction to the last 6 earnings reports has been a move of about 1.85% on average or 20 cents making for an expected range of 10.35 to 10.75. The at-the money weekly January Straddles suggest a larger 0.55 move by Expiry with Implied Volatility at 110% above the January at 55% February at 34%. Short interest is elevated at 11%.

Trade Idea 1: Buy the January 10.5/10 Put Spread for 0.20.
 
Trade Idea 2: Buy the January 10.5/10 1×2 Put Spread for 0.10.
 
Trade Idea 3: Buy the January 10.5/February 10 Put Diagonal (buy Jan sell Feb) for 0.05.
 
Trade Idea 4: Buy the February 10/11 bullish Risk Reversal for 0.06.
 
Trade Idea 5: Buy the April 10/11 bullish Risk Reversal for 0.08.

Infosys, (INFY)

Infosys, (INFY), is a very bizarre stock technically. It trades in a box around a tight range following each earnings report, until the next one. You just need to know which way it will gap. If it were only that easy. It has an RSI that is at the mid line and falling but this has been a support area. The MACD indicator has crossed down supporting more downside. Notice that prior to each of the past gaps the direction of the RSI has been a good predictor of the direction of the gap. This has a downside bias in the chart. Support lower comes first at 55.40 and 54.85 and then 53.10 and 52.20 before 50.50. Resistance is found at 57.50 and 58.30. The reaction to the last 6 earnings reports has been a move of about 11.77% on average or 6.55 making for an expected range of 49 to 62.25. The at-the money January Straddles suggest a smaller 4.25 move by Expiry with Implied Volatility at 61% above the February at 34%. Short interest is low at 3%. There were large sellers of the February 55 Puts yesterday and some January 52.5/60 bullish Risk Reversals have been trading today.

Trade Idea 1: Buy the January 55 Straddle for 4.40.
 
Trade Idea 2: Buy the January 52.5/February 47.5 Put Diagonal for 0.55.
 
Trade Idea 3: Buy the January/February 60 Call Calendar for a 0.55 credit.
 
Trade Idea 4: Buy the January 52.5/50 Put Spread for 0.60.

Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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