Alcoa (AA) Buy-Write Strategy Capitalizes on High Aluminum Prices

Despite elevated aluminum production costs and shipment timing issues, Alcoa (AA) is strongly capitalizing on structurally higher prices.

LME aluminum has recently surged to four-year highs, driven by geopolitical tensions in the Middle East and a tightening global supply balance. This favorable macro pricing environment creates a compelling opportunity for a buy-write (covered call) strategy to optimize returns while managing cyclical volatility.

Some have described the buy-write strategy as the gateway trade for many new options traders. It allows you to buy a stock for less in exchange for capping your upside by selling an upside call.

The Strategy:

June $70 Buy-Write.

Buy the shares around $62.50

Sell the June $70 strike calls at $1.80

Max Loss: $6070

Max Gain: $930

Skill 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. If the stock falls, that $1.80 in collected premium acts as a buffer, so in this case, losses wouldn't kick in until $60.70 ($62.50 stock price less the $1.80 collected). If Alcoa rises above $70 by June expiration, your stock will be called away, but you will have collected the $1.80 and made a tidy 12% on the stock portion of the trade.

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The bull case

Driven by supply shocks, a sequential increase in realized primary aluminum prices boosted Alcoa's Aluminum segment EBITDA, and management reaffirmed its full-year 2026 production and shipment guidance. The company is actively investing $65 million in its low-carbon Mosjøen smelter in Norway while simultaneously using cash to fully redeem $219 million of expensive debt, thereby strengthening the balance sheet.

The company targets reducing debt from the current $2.5 billion to between $1 billion and $1.5 billion. (Note that the company had approximately $2.8 billion in cash as of the March 31st earnings report and is expected to generate $813 million in free cash flow for FY2027).

The bear case

While the metal side is booming, Alcoa's Alumina segment recorded negative EBITDA of $40 million due to persistent global price pressures, rising energy costs, and freight headwinds. Supply lines depend heavily on complex global shipping routes such as the Strait of Hormuz. Additionally, fluctuating Section 232 tariff costs threaten to squeeze importing margins.

The bottom line?