Call selling in Alcoa (NYSE: AA)

Earnings are out of the way for Alcoa (NYSE:AA), but that doesn’t mean option traders have forgotten about the metal stock. In Friday’s session, the stock dropped 18 cents on the day to $15.63 and investors swooped in to sell upside calls.

The July 20 call – out-of-the-money by almost 28% – was especially popular, as more than 20,000 contracts changed hands on this option, which had entered Friday’s session with only 2,512 open contracts. Open interest expanded this morning to more than 22,000.

The bulk of the volume traded shortly before 11:00 AM on Friday. A block of 17,600 contracts traded at 51 cents per contract, making the entire block trade worth almost $900,000. The option closed down 10 cents on the day with the stock down 18 cents. This call certainly fell more than its delta of 25% would expect, dropping 10 cents on the day with the stock down 18 cents. It is therefore likely the calls were sold to open, possibly as part of a covered-call strategy.

Meanwhile, the February at-the-money (16-strike) straddle dropped a nickel to $1.52 from $1.57 at Thursday’s close. With earnings in the rearview mirror, the options market is expecting a move of just 9.7% in the stock between now and February options expiration on the 19th of next month.

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