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Investors Take a Chance on Aeropostale Calls

Call volume swells on ARO

by 1/10/2012 2:29 PM
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Teen apparel retailer Aeropostale (ARO - 16.54) has seen an upswing in call activity today, as more than 2,500 of these options have been traded so far, which is five times the equity's expected intraday volume. The bulk of the action has centered around the out-of-the-money January 2012 17.50 strike, where over 2,000 calls have been exchanged -- nearly all of them at the ask price, suggesting they were purchased. This option is currently home to peak front-month call open interest of 2,894 contracts, making it hard to say for sure whether new positions are being opened here today.

This uptick in call volume goes against the bearish norm for ARO. According to the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio checks in at 1.39, confirming that puts bought to open have comfortably outnumbered calls during the past couple of weeks. This ratio ranks in the 84th percentile of its annual range, meaning that traders have been scooping up bearish options over bullish at an accelerated pace.

Meanwhile, short interest on ARO climbed by 6.78% during the most recent reporting period, so some of today's call activity could be attributed to short sellers seeking to hedge their bets. Either way, these bearish plays account for a hefty 15.89% of the equity's float.

Exploring ARO's technical performance, the stock has gained about 8.5% this month alone, and has bested the broader S&P 500 Index (SPX) by around 17% during the past 60 sessions. A look at the charts shows that the equity appears to be hovering just beneath its 200-day moving average, which has served as resistance since early May.

At last check, ARO is up about 2.3% and is trading at $16.54.


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