Higher aluminum prices are powering one former Dow component. Here's how to buy for less
Higher aluminum prices are benefiting Alcoa, a former Dow component. Investors can utilize a buy-write strategy to enhance returns while managing risk. This approach allows for immediate income through options while providing a buffer against potential losses.
- ▪Investors can buy Alcoa shares around $62.50 and sell June $70 strike calls at $1.80.
- ▪The strategy captures premium from elevated implied volatility and enhances the dividend yield.
- ▪If the stock price falls, the collected premium acts as a buffer against losses.
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June $70 Buy-Write.Buy the shares around $62.50Sell the June $70 strike calls at $1.80Max Loss: $6070Max Gain: $930Skill Level: Beginner Executing a buy-write on AA allows investors to capture premium from the stock's elevated implied volatility. Simultaneously buying Alcoa shares and selling an out-of-the-money call option provides immediate income. This premium effectively enhances Alcoa's modest $0.10-per-quarter dividend, establishing a solid "positive carry" that lowers the net cost basis and provides a modest buffer, particularly if one rolls the covered call position consistently, against near-term downside. If the stock goes nowhere, you keep that $1.80 in premium, creating a synthetic yield.
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