2 High-Flying Retail Stocks With Bargain-Bin Options

AEO and ANF stocks hit new highs this week, yet Wall Street remains unconvinced

Apr 11, 2018 at 12:36 PM
facebook twitter linkedin

While much of the stock market has been struggling over the past couple of months, a pair of retail stocks have been quietly making new highs. Specifically, American Eagle Outfitters (NYSE:AEO) and Abercrombie & Fitch Co. (NYSE:ANF) stocks have been outperforming in a big way -- and it looks like short-term options are on sale for both AEO and ANF.

Upgrades Overdue for Soaring AEO Shares

American Eagle stock has advanced 13.5% in 2018, with pullbacks contained by its 80-day moving average. Further, AEO yesterday notched a fresh five-year high of $21.60. The shares were last seen 0.5% lower at $21.33.

Despite the equity's outperformance, half of the analysts following AEO maintain tepid "hold" or "strong sell" ratings. Not to mention, the average 12-month price target among analysts is $20.35 -- a discount to American Eagle shares' current price. As the stock extends its advance, a round of upgrades or well-deserved price-target hikes could lure more buyers to the bandwagon.

Recent options buyers have picked up AEO puts over calls at a faster-than-usual clip. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 2.18 is in the 83rd percentile. An unwinding of pessimism in the options pits could also add fuel to the security's fire.

As alluded to earlier, AEO is one of the few stocks flirting with new highs while simultaneously sporting attractively priced options. The equity's Schaeffer's Volatility Index (SVI) of 36% is higher than just 12% of all others from the past year, suggesting American Eagle's near-term options are pricing in historically low volatility expectations at the moment.

Abercrombie & Fitch Stock Could Enjoy a Short Squeeze

Abercrombie & Fitch stock touched a nearly two-year high of $28.45 earlier today, but was last seen fractionally lower at $28.09. ANF shares have more than tripled since their mid-July lows, climbing steadily higher atop their 10-week moving average. In fact, in 2018 alone, the stock has surged more than 61% despite broad-market headwinds, with help from an early March earnings beat.

A short squeeze could add fuel to ANF's fire, too. Short interest represents more than 20% of the equity's total available float, or more than a week's worth of pent-up buying demand, at ANF's average pace of trading.

Likewise, a round of overdue upgrades could also propel the retail stock higher. Despite Abercrombie stock's surge in the face of a broader stock market pullback, only three of 14 analysts deem the security worthy of a "buy" or better endorsement. And the average 12-month price target of $22 represents a whopping 21.6% discount to ANF's current share price.

As with Aeropostale, Abercrombie options traders have picked up long puts over calls at an accelerated clip during the past two weeks. ANF's 10-day ISE/CBOE/PHLX put/call volume ratio of 2.89 is in the 86th percentile of its annual range. A mass exodus of option bears could translate into a tailwind for the shares.

Traders looking to speculate on Abercrombie & Fitch stock's near-term trajectory can do so at a relative discount, though. The equity's SVI of 51% is in just the 17th percentile of its 12-month range.


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Schaeffer's Daily Bulletin Offer


Special Offers from Schaeffer's Trading Partners