Trade of the Day: Alcoa (AA)

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I’ve been watching Alcoa (AA) very closely ahead of earnings.

If you didn’t already see it, I was contemplating an Alcoa strangle as a way to possibly trade the stock, but some additional chart work revealed that AA has a clear bias to the downside. Alcoa’s two-year chart shows there is risk for a drop to $10 to $9 on continued closes below $11 and the 200-day moving average.  Resistance is at $11.75-$12.

The best way to play Alcoa’s possible slide is with a short-term put option.

Buy the AA August 11 puts (AA150821P00011000) at current levels, which are about 45 cents.

My exit target for the puts is 90 cents, or about 90% higher from where they are now. I don’t have a stop loss in place because I’m going to watching Alcoa like a hawk until earnings come out Wednesday after the market closes. I’ll provide an update when I take action to exit the trade.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/trade-of-the-day-alcoa-aa/.

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