Buy Calls on Alcoa

Buy Calls on
Alcoa
By
www.Options-Trading-Education.com

Although lower second quarter
earnings drove Alcoa’s stock
price lower news of a new
contract with Airbus may be
good reason to by calls on
Alcoa.


Aluminum prices are at
historic lows which is what
drove down aluminum profits
for the company in the second
quarter of this year.


However, its presence in
aerospace is substantial and
growing.


A recent press release tells us
that Alcoa (AA) has just finalized
agreements worth $1.4 Billion
with the European airplane
maker, Airbus, to supply a wide
range of products for virtually all
of Airbus’ products.


That includes the newest, the
A350.


Highlights of this contract are
the aluminum and aluminum-
lithium parts for wings and
fuselage panels.


These parts are meant to
compete with the carbon fiber
reinforced plastic parts used
by Boeing in its 787
Dreamliner.


The company has developed
state of the art processes to
make aluminum-lithium parts
giving it a technical edge over
many other aluminum makers
and giving traders a reason to
buy calls on Alcoa before the rest
of the market catches on.


Overall Alcoa gets three and a
half billion in revenue yearly
from its aerospace customers
with products including
aluminum, lithium, titanium,
and nickel.


Although many are tempted to
buy puts on airline stocks
there are lots of planes in the
pipeline and lots of profits for
efficient suppliers, which may
be a good reason to buy calls
on Alcoa.


Where Will Alcoa’s
Profits Be?


In an increasingly competitive
world the most successful
companies are commonly the
most innovative.


When Alcoa found out that
Boeing intended to use carbon
fiber reinforced plastics on its
Dreamliner the company
looked for an alternative that it
could make


It had to be competitive in
being
stronger, lighter, corrosion
resistant, and cheaper.


The technology they
developed was aluminum-
lithium.


According to Alcoa, using
aluminum-lithium instead of
composites will improve fuel
efficiency by a forth, reduce
weight by as much as a tenth,


and result in a product that
requires roughly half as many
inspections over time for
structural problems and
corrosion issues.


As with the use of composites
aluminum-lithium results in an
airplane with better humidity
control and larger windows.


In the world today there are
over eight thousand
commercial aircraft on order.
This amounts to eight years of
aircraft production.


These would also appear to
be good reasons to buy calls
on Alcoa.


Today’s leading aircraft
makers are Boeing and
Airbus.


However, Embraer in
Brazil, Comac in China, and
Russian manufacturers all are
on the rise.


Given time these companies
will cut out niches in the global
market and use advanced
technologies such as Alcoa’s
aluminum-lithium parts to
make lighter, stronger, more
cost efficient aircraft.


Succeeding in options trading
often has to do with seeing the
future and then timing the
purchase or sale of an options
contract.


Using Options to Get a
Good Price


Despite what could be a rosy
future for Alcoa in making
parts for the automotive and
aerospace industries the stock
is down today due to low
aluminum prices.


Options traders can buy calls
on Alcoa simply to make a
short term profit.


However, long term investors
can also buy calls on Alcoa in
order to buy the stock at a
depressed price prior to a
global economic recovery and
more profits for Alcoa.


Risk management in option
trading allows investors to
stake out positions very cost
effectively and not buy until
the stock goes up.


For more insights and useful
information regarding options
and options trading, visit

www.Options-Trading-
Education.com.

Buy Calls on Alcoa

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