Blue chip aluminum giant Alcoa (AA) is slated to kick off the the next round of corporate earnings after the close tomorrow night. And this earnings report will test the recent momentum of AA stock.

Wall Street is expecting Alcoa earnings of 5 cents per share, down from 11 cents per share of AA stock in the same quarter last year. Revenue is seen falling 4.7% from year-ago levels to $5.56 billion.

Overall expectations might be considerably lower, however.

For instance, the whisper number for Alcoa earnings arrives at a penny per share — 4 cents lower than the consensus. Meanwhile, the brokerage community has doled out 13 “hold” or worse ratings, compared to just five “buy” ratings. Furthermore, the current 12-month price target of $10 per share represents a considerable discount to AA’s close at $12.58 on Friday.

While upgrades and price-target increases could go a long way to providing support for AA stock, the company will have to overcome weak aluminum prices and sluggish economic growth. Still, there is a bright spot, as global aluminum demand is expected to grow by 7% in 2014.

As such, Alcoa’s earnings guidance could help the company overcome any short-term weakness.

Turning to options activity, AA stock has seen an influx of short-term put open interest, hinting at low expectations from these speculative traders. Specifically, there are roughly 2,945 put contracts open in the weekly April 11 series of options, compared to 2,398 calls. The result is a bearishly slanted weekly April 11 put/call open interest ratio of 1.23.

Moving beyond weekly options, AA stock’s put/call open interest ratio declines slightly in the April/May series, arriving at 0.9 with 167,221 puts and 185,345 calls open in the front two months of options.

Drilling down on AA’s options activity, we find that the most popular strike is the monthly April 13 call, where more than 52,000 contracts are open. Also of note are the April 14 strike, where just roughly 25,000 calls are open, and the April 10 call, which sports open interest of about 21,000 contracts. On the put side, traders have zeroed in on the April 12 and 13 strikes, with each sporting roughly 35,000 contracts.

Click to Enlarge Technically, AA stock has been impressive, rallying nearly 20% so far this year. The shares also enjoy solid support from their 10- and 20-day moving averages. Currently, AA stock is facing potential resistance in the $13 region — a level the shares have not traded solidly above since July 2011.

Options Trade on AA Stock

Traders looking for a play on AA stock ahead of tomorrow night’s earnings release will want to know that April implieds are only pricing in a potential post-earnings move of about 5.4%. This places the upper bound at $13.18, while the lower bound lies at $11.82.

With the potential for solid guidance on rising aluminum demand, and a wealth of investor pessimism that could potentially unwind in additional buying power, traders might want to consider opening a call position on AA stock.

At the close of trading on Friday, the May 11 call was offered at $1.75, or $175 per contract. Breakeven lies at $12.75, while your maximum loss is capped at the premium paid for the option contract.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.