Option trade alert on American Eagle (AEO) long calls

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American Eagle Outfitters Inc. (NYSE: AEO ) call volume in the November options expiration month spiked during morning trading, and it appears that an investor expressed bullishness on the clothing retailer following its June same-store sales announcement. AEO announced worse-than-expected sales numbers for June (a 1% drop compared to the market's estimated 2% rise on the month), which could be the catalyst for the stock's significant drop during morning trading.

AEO shares have dropped more than 4%, or 55 cents, to $11.72 so far on the day. But options action on the tape suggests at least one investor anticipates upside during the next few months, and expressed that bet by loading up November 12.5 calls. These out-of-the-money ( OTM ) calls changed hands for a premium of $1, which was the ask price at the time of the trades. The OTM November 12.5 calls are home to current open interest of 1,300 contracts, suggesting the investor opened the long call positions on a bet that AEO shares will be trading higher than $13.50 at November options expiration. If the stock rallies at least 14% during the next 43 days, the investor could theoretically make unlimited gains to the upside. If the stock is still trading below the strike price at expiration, maximum loss on this long call position is the premium paid, or $1 per contract. It is possible that the investor tied a stock position to this options action, but this article focuses on the bullish call action on the tape.

AEO shares are currently trading just 3% off their 52-week low, but it looks like at least one investor expects the stock to experience upside during the next four months. AEO has not announced its next earnings release date, but the market expects the report around Aug. 26.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Options

Referenced Stocks: AEO , OTM

Karla Yeh

Karla Yeh

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