Beaten stock could surge on earnings: Traders

Shares of Alcoa are down more than 3 percent Wednesday ahead of the company's fiscal 2015 second-quarter earnings release after the bell. And options traders are expecting even bigger moves from the aluminum giant following the results.

"The options market is implying a one-day move of 5.5 percent, which is well above the four-quarter average of about 4 percent," options expert and CNBC Contributor Dan Nathan said Tuesday on CNBC's "Fast Money." And it appears the sentiment is quite bullish.

Tuesday, when options volume ran more than six times its daily average, some traders were placing bets the stock could rally nearly 8 percent in the next two months. Specifically, there were more than 15,000 of the September 11-strike calls purchased at an average price of 53 cents. Since buying a call is a bullish strategy that allows one the right to purchase a stock at a set price at a given time, these trades are profitable if Alcoa rises above $11.53 by September expiration.

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"The idea of paying 53 cents for an at-the-money call looking out two months on a stock that is down more than 30 percent on the year makes a lot of sense," said Nathan, founder of RiskReversal.com. "I think you want to define your risk if you want to play for a bounce in the stock."

Wall Street analysts are expecting Alcoa to earn 23 cents in the second quarter, which is up from 18 cents a year ago, according to FactSet. Those same analysts are expecting the company to report $5.81 billion in revenue.

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