Alcoa Inc (NYSE:AA)’s one Put and one Call
Alcoa Inc (NYSE:AA) has always been a popular stock for investors. This week, there is one notable put contract, and also an interesting call contract, with October expiration. The put contract is the $8 strike one, which currently has a bid of 16 cents, at point of writing. Collecting this bid represents a 2% premium return against an $8 commitment, or a 22.% annualized-rate of return.
Selling any put does not give investors access to Alcoa Inc (NYSE:AA)’s upside-potential in the manner in which owning shares does. This is because the put-seller will own shares only if the contract is actually exercised. So unless the company sees its shares drop 1.7% and the contract gets exercised (this will result cost-basis of $7.84/share including broker commissions, minus the 16cents from $8), the one upside to the put-seller is from collecting the premium for the 22.1 percent annualized rate-of-return.
What is worth considering, is that this annualized 22.1 percent figure exceeds the 1.5 percent annualized-dividend that Alcoa Inc (NYSE:AA) paid, by 20.6 percent, based on the current share- price of $8.14.
Despite this, if any investor were to purchase the stock at the current market-price in order to collect that dividend, there is larger downside as the stock will have to lose 1.72 percent to reach that $8 strike price. What is important while dividends are being discussed is that, dividend amounts do not have predictability and generally follow profitability ups and downs at each company.
In Tuesday’s trading, Alcoa Inc (NYSE:AA) rose by 1.98%. The opening price of the shares was $8.10 which climbed to an intraday high of $8.30 and closed at $8.26. Approximately 22.31 million shares were traded on Tuesday while the average volume of shares traded over 30 days was 21.61 million. The company has a market capitalization of $8.84 billion.