Market Overview

Aeropostale Confirms Breakout, Looks to Trade Higher

Shares of Aeropostale (NYSE: ARO) are trading higher on the session by 2.50%, at $17.60. The stock just hit an intra-day high, confirming that shares have broken out above the February 3rd, $17.15 high. The puts ARO in the position to breech the November 8th high of $17.90 on its way to the several gaps above.

Options action seems to be indicating just such a move. Call are active on the name today, namely the July 2012 $21.00 strike, which has traded 2,040 times on open interest of only 47 contracts. Nearly 90% of all calls traded on the name have been purchases on the offer. This is nothing new; call volume has been outpacing put volume for the past two weeks.

With such strong technicals and options activity, the 10.82% short interest has to be getting antsy. This will add some fuel to the bullish momentum of the name.

Given the current overall implied and historical volatilities (42% and 25%, respectively), buying upside calls like the July $21 strike noted above (41.75% vol) is a pricy proposition. In fact, just getting long Aeropostale through long stock may be the best way to go; stop losses just below $17.00 would provide good risk/reward.

Those willing to take advantage of the pumped up volatility in the calls can also look to sell those options against the long stock position.

Aeropostale, Inc. is a mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men through its Aeropostale stores and 7 to 12 year-old kids through its P.S. from Aeropostale stores.

Posted-In: Long Ideas Technicals Options Markets Trading Ideas

 

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