The investor now has the right to buy shares in the aluminum giant for $9 for the next six months — no matter how high the stock may go. As a result, he or she will enjoy significant leverage in the event of a rally. But the drawback of the strategy is that the trader will also lose the entire investment if the shares don’t appreciate.
Shares of Alcoa rose 0.82 percent to $8.62 on Friday and has been weak along with most other metals companies because of the European debt crisis and lackluster growth in China. Quarterly results will come out after the bell on July 9 in what is traditionally considered the beginning of corporate-earnings season.
Overall option volume was almost triple the daily average on Friday. Volume was almost six times greater than average in the session.
Additional News: Demand for Aluminum Growing: Alcoa CEO
Additional Views: Alcoa a Bright Spot in a Troubled Market?
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David Russell is a reporter and writer for OptionMonster. Russell has no positions in Alcoa.