American Eagle Options Traders Bet On a Post-Earnings Volatility Crush

Call writers have targeted AEO stock ahead of earnings

Mar 7, 2018 at 10:44 AM
facebook twitter linkedin

American Eagle Outfitters (NYSE:AEO) is scheduled to report fourth-quarter earnings before tomorrow's open. Ahead of the event, the shares hit a four-year high of $20.83 out of the gate on tailwinds from a positive reaction to Abercrombie & Fitch (ANF) earnings, and were last seen up 0.3% at $20.54. The options market is expecting a volatile day of trading for the retail stock tomorrow, pricing in a 14.7% post-earnings swing, regardless of direction.

Looking at AEO's past earnings reactions gives mixed signals. While the shares gapped higher following the retailer's last two quarterly results -- averaging a 5.1% gain -- the four quarters prior resulted in sharp moves lower. In fact, in May 2017 the stock fell 14.7% in the session after earnings, and plunged 9.5% in this same quarter one year ago.

Diving into AEO sentiment suggests traders are betting on a post-earnings retreat for the stock. Since hitting a four-year low in early January, short interest has shot up 20% to 14.28 million shares. This accounts for a healthy 8.9% of the security's available float, or 4.4 times the average daily pace of trading.

And while call open interest of 46,042 shares is in the 95th annual percentile, it looks like a large amount of this activity is more bearish in nature. The May 20 call is home to peak open interest of 15,279 contracts, and Trade-Alert points to significant sell-to-open activity here back in mid-December.

Likewise, data from the major options exchanges indicates notable call writing at the weekly 3/9 23 strike in late February. While these speculators may have targeted a ceiling for the shares, the weekly call writers, in particular, may be betting on a post-earnings volatility crush.


Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!