Traders on the International Securities Exchange (ISE) have been loading up on bullish bets in anticipation of this afternoon's earnings report from Alcoa Inc. (AA). During the past five days, speculators on the ISE have bought to open 42,765 calls on AA, compared to 15,048 puts. In other words, nearly three times more calls than puts have been purchased within the last week.
In the front-month series, the most significant change to open interest during this time frame has occurred at the 10 strike. This narrowly out-of-the-money call has seen open interest swell by roughly 28,000 contracts during the past five days. The July 10 call now has a whopping 115,283 contracts in residence.
However, at least one trader isn't betting on any major post-earnings moves from AA. It looks as though a short strangle was peine today at the stock's July 9 put and July 10 call, with each option seeing a block of 1,500 contracts cross the tape this morning at their respective bid prices. By opening this spread, the investor is wagering that AA will remain pinned between the $9 and $10 levels through July expiration.
While there's no way to tell whether this prediction will come true, it's certainly an opportune time to sell premium on AA. Thanks to that looming earnings report, implied volatility (IV) has jumped higher, pushing option prices north in the process. The July 9 put sports IV of 91%, while the July 10 call carries IV of 95%. Meanwhile, AA's one-month historical volatility weighs in at a notably slimmer 64% -- and these options will expire in less than two weeks.