Alcoa (AA) and Alcan (AL) shares surged amid news of Alcoa’s planned takeover bid. Alcoa’s stock is up 5.2% this morning to a 52-week high of $37.50 while Alcan’s stock raced up 34% to $81.77.
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An audio podcast of this article is available at: poweropt.com/podcasts/2007_05_07_Alcoa.mp3
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The companies have been in merger talks for close to two years, but prior to this announcement it was not apparent if the negotiation was going to be successful. Alcoa’s chairman and CEO, Alain Belda, has been quoted in AP articles as saying, “We are very disappointed that those efforts did not result in a negotiated transaction — a conclusion we would have strongly preferred. We believe firmly in the compelling strategic rationale behind the combination of Alcoa and Alcan and are convinced that this transaction creates substantial value for both sets of shareholders and for our customers around the world. We are therefore taking our offer directly to Alcan shareholders.”
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The details of the deal include paying Alcan $58.60 a share for its stock in a cash payment and 0.4108 Alcoa common stock for each Alcan common share. This bid places a 32% premium on the value of Alcan shares; a premium closely mirrored by the Alcan stock movement this morning.
Currently, Alcoa estimates the combination of the aluminum companies would result in $1 billion in pre-tax annual cost synergies.
A number of anti-trust regulatory bodies must first approve the deal. They include the U.S., Canada, the European Union, Australia and Brazil. Alcoa has stated it believes an anti-trust agreement can be met. Belda stated in an AP article, “We believe that any antitrust issues raised by an Alcoa-Alcan combination can be solved through targeted divestitures and by proactively working with regulators to address competitive concerns.”
This PowerOptions blog entry is an example of how the average investor can identify the most attractive option trade based on their view of whether a stock will rise or fall. If an investor’s view is bullish, they might choose to use a covered call investment strategy, bull call debit spreads or bull-put credit spreads to make money off their hunch. If an investor believes a stock will fall, they might choose bear put debit spreads or bear-call credit spreads.
Potential Trades:
Today, we will look at some covered call examples across the aluminum industry. This broad view may help an investor identify other compelling trades in the sector. All of the following option trades have 40 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| PowerOptions covered call search Aluminum Sector (40 days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CENX | $53.79 | CQLFK | 07 JUN $55.00 | $2.45 | 4.60% | 4.80% | 7.10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACH | $30.50 | ACHFF | 07 JUN $30.00 | $1.90 | 6.20% | 4.90% | 4.90% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| KALU | $84.45 | QMKFQ | 07 JUN $85.00 | $3.40 | 4.00% | 4.20% | 4.90% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AA | $37.98 | AAFU | 07 JUN $37.50 | $2.00 | 5.30% | 4.20% | 4.20% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CENX – Century Aluminum through its subsidiaries, produces aluminum in North America. This trade involves the June $55 call option and offers 4.6% downside protection and 7.1% potential profit if the stock is above the $55.00 strike price at the end of the option period. The stock is currently trading at $53.79.
ACH – Aluminum Corporation of China LTD. engages in the production and sale of aluminum in the People’s Republic of China. This trade involves the May $30.00 call option and offers 6.2% downside protection and 4.9% potential profit if the stock is above the $30.00 strike price at the end of the option period. The stock is currently trading at $30.50.
KALU- Kaiser Aluminum produces fabricated aluminum products in North America. This trade involves the May $85.00 call option and offers 4.0% downside protection and 4.9% potential profit if the stock is above the $85.00 strike price at the end of the option period. The stock is currently trading at $84.45.
AA – Alcoa Aluminum engages in the production and sale of primary aluminum, fabricated aluminum, and alumina worldwide. This trade involves the May $37.50 call option and offers 5.3% downside protection and 4.2% potential profit if the stock is above the $37.50 strike price at the end of the option period. The stock is currently trading at $37.98.
Competitors:
Competitors for CENX include: Alcan, Inc. (AL), Alcoa Inc. (AA), and Ormet Corporation (private).
Competitors for KALU include: Alcan, Inc. (AL), Alcoa Inc. (AA), and Hydro Aluminium AS (private).
Competitors for AA include: Alcan, Inc. (AL), Hydro Aluminium AS (private), RUSAL (private), Accuride Corp. (ACW), Aleris Intl. Inc. (ARS), BHP Billiton Ltd. (BHP), Ball Corp. (BLL), Century Aluminum Co. (CENX), Carbo Ceramics Inc. (CRR), Novelis Inc. (NVL), Quanex Corp. (NX), and Precision Castparts Corp. (PCP).
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.
PowerOptions‘ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.
[tags] Alain Belda, AP, U.S., Canada, European Union, Australia, Brazil, Ormet Corporation, Hydro Aluminium AS, RUSAL, AA, ALCOA Inc., ACW, Accuride Corp., AL, Alcan Inc., BHP, BHP Billiton Ltd., BLL, Ball Corp., CENX, Century Aluminum Co., CRR, Carbo Ceramics Inc., NVL, Novelis Inc., NX, Quanex Corp., PCP, Precision Castparts Corp., bear put debit spreads, bear-call credit spreads, bull call debit spreads, bull-put credit spreads, covered call example, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]