news.cmlviz.com
menu
share

Stock Alert and Holding Pattern: ALCOA CORP Realized Volatility Hits An Amplified Level




ALCOA CORP (NYSE:AA) Realized Volatility Hits An Amplified Level

Date Published:

Stock Alert and Holding Pattern
Before we cover the full analysis we make a quick alert here that ALCOA CORP (NYSE:AA) has seen its stock price move at an amplified level. We'll go through the details below -- but that's the lede -- the stock has been behaving, roughly speaking, 'normally.' If there was a post it note to summarize the stock movement in the last 30-days it would likely read "holding pattern." The HV20 is 34.59% verus the HV20 of the S&P 500 at 5.76%.



But don't confuse a holding pattern with low risk -- this is quite possibly an inflection point.

Another bit to this holding pattern, which we cover in the article, is that while the historical volatility may be an amplified level, the real question that needs to be answered for option traders is not if the HV20 is high or low, but rather if the implied volatility that is priced for the next 30-days accuratley reflects what we're about to see in the stock for the next month.

To jump forward and examine if owning or shorting options has been a positive trade in ALCOA CORP, you can go here: Getting serious about option trading.

PREFACE
This is a proprietary realized volatility rating created by Capital Market Laboratories (CMLviz) based on a large number of data interactions for ALCOA CORP (NYSE:AA) . We examine the little used gem of daily stock volatility over a 20-day and 30-day trading period, as well as comparisons to the last year and the actual stock returns over the last three- and six-months and the S&P 500 and Nasdaq 100 indices.


Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth

As a heads up, in the "Why This Matters" section at the end of this article on ALCOA CORP (NYSE:AA) , we're going to take a step back and show really clearly that there is actually a lot less "luck" in successful option trading than most people are aware of. This idea of an "option trading expert" is vastly over complicated so those with the information advantage can continue to profit at the expense of the rest.

But before that, let's turn back to AA. Here are the exact steps that led us to this rating, and whether it's a risk alert or a holding pattern.

AA Recent Realized Volatility


Rating
Realized volatility using proprietary measures has hit an amplified level. Let's take a deep dive into some institutional level volatility measures for ALCOA CORP (NYSE:AA) .

ALCOA CORP Stock Performance
AA is up +36.7% over the last three months and up +36.8% over the last six months. The stock price is up +52.0% over the last year. The current stock price is $45.05.

AA Step 1: Stock Returns
The one-year stock return does not impact the volatility rating since we are looking at a shorter time horizon. However, the rating does examine the 3-month returns and the absolute difference between the 3-month and 6-month returns.

  The 3-month stock return of +36.7% has a substantial impact on the realized volatility rating for AA.
  The small difference between the 3-month and 6-month stock returns does not impact the realized volatility rating for AA.

AA Step 2: Daily Realized Volatility Level
The HV30® takes the stock's day to day historical volatility over the last 30-days and then annualizes it. The HV20 looks back over just 20-days -- a shorter time period. Here is the breakdown for ALCOA CORP (NYSE:AA) and how the day-by-day realized historical volatilities have impacted the rating:

  The HV20 of 32.4% is in the middle ground, neither elevated nor depressed, so in this case the raw HV20 number has no impact on AA's volatility rating.


AA Step 3: ALCOA CORP HV20 Compared to Indices
* The HV20 for AA is substantially larger than that for both the S&P 500 and the NASDAQ 100 which raises the volatility rating.

* The HV20 for AA is substantially larger than that for the Materials ETF (XLB) which raises the volatility rating.

Here is summary data in tabular and chart format.

           AA
           HV20    
   S&P 500
HV20
   NASDAQ 100
HV20   
   XLB
HV20   
           32.4%    5.76%    10.72%    8.6%

AA Step 4: Daily Volatility Percentiles and Highs

We also examine the annual high of the HV30 in our rating.
  The 52 week high in HV30 for AA is 86.6%, which is high and has an upward impact on the realized volatility rating.

Here is summary data in tabular and chart format.

           AA
           HV20    
   AA
HV30
   AA
HV30 High   
           32.4%    34.6%    86.6%

Final Realized Volatility Percentile Level: AA
The final evolution of the volatility rating for ALCOA CORP is a comparison of the HV30 value relative to its past, which is neatly summarized in the percentile -- a scoring mechanism that goes from a low of 1 to a high of 100.

  The HV30 percentile for ALCOA CORP is 15%, which means the stock has seen very low volatility in its price movement relative to its own past and that has a dampening impact on the realized volatility rating.

ALCOA CORP Realized Volatility Percentiles