American Eagle Outfitters Inc. (NYSE: AEO ) did not announce any news on Thursday to account for the significant pop-up in the stock, but at least one investor could be calling for further upside during the long term. Call volume in the February 2011 expiration month remains active during the morning trading session thanks to heavy buying action.
Between 10:15 a.m. EST and 10:50 a.m. EST, more than 8,200 out-of-the-money (OTM) February 2011 15 calls changed hands versus current open interest of 522 contracts. These OTM calls changed hands for 70 cents per contract. The February 15 calls have gained 23 cents so far on the day and are trading with a 32-delta, meaning the calls are up more than the delta level would suggest.
This options action indicates investors bought these options on a bet that AEO shares will be trading higher than $15.70 at February 2011 options expiration. If the stock does rally more than 25% prior to expiration, the investor could theoretically make unlimited profits to the upside. This long call trade caps any losses at the premium paid to open this bullish position.
This options action calls for AEO shares to lift off its lows and soar higher during the long term. Without a clear catalyst other than the broader market strength, AEO shares gained more than 4% during morning trading. The stock was trading up 56 cents to $12.60 as of 10:58 a.m. EST.
AEO has not confirmed its next earnings release date, but the market expects the report around Aug. 25.
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