Earnings Preview: Aeropostale, Inc., JA Solar Holdings Co., Ltd., and El Pollo Loco Holdings, Inc.

Analyzing recent option activity on Aeropostale Inc (ARO), JA Solar Holdings Co., Ltd. (ADR) (JASO), and El Pollo Loco Holdings Inc (LOCO)

Mar 11, 2015 at 1:55 PM
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Among the stocks gearing up to report earnings tomorrow are clothing retailer Aeropostale Inc (NYSE:ARO), solar energy concern JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO), and restaurant chain El Pollo Loco Holdings Inc (NASDAQ:LOCO). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on ARO, JASO, and LOCO.

  • ARO has been in recovery mode, with the shares up 85.9% since touching a 12-year low of $2.13 on Dec. 9 to reach $3.96, including a 1.4% gain today. What's more, Mizuho hiked its price target on the stock to $3.50 from $3 this morning, with the brokerage firm reiterating its "neutral" rating. However, puts are popular in Aeropostale Inc's options pits, as its 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.58 sits just 8 percentage points away from an annual peak. Traders hoping for post-earnings downside have history on their side -- in the session immediately following its last eight earnings reports, ARO has shed an average of $14.5%, including a 22.3% drop in December. Near-term options for the equity are currently available for cheaper-than-usual prices, as its Schaeffer's Volatility Index of 80% sits in the 38th percentile of its annual range.

  • JASO, which will report its fourth-quarter earnings tomorrow morning, is also in recovery mode. Drilling down, the shares have advanced 30.9% since notching an annual low of $6.70 on Oct. 15 to hit $8.77, including a 0.2% gain today. Accordingly, call buying in the options pits has been heating up, as JA Solar Holdings Co., Ltd.'s 10-day ISE/CBOE/PHLX call/put volume ratio of 33.89 sits in the 86th percentile of all similar readings taken over the past year. Meanwhile, in the session immediately following its last four earnings reports, JASO has dropped an average of 1%. Traders are paying slightly inflated prices for their short-term bets on the security, as its SVI of 74% sits in the 59th percentile of its annual range.

  • LOCO has been trending upwards as well, with the shares up 19.3% year-to-date to reach $23.82. Looking further back, however, the Wall Street freshman has struggled, with the shares down 42.9% from their Aug. 1 all-time high of $41.70 (achieved just six days after the company's IPO). Sentiment among the brokerage bunch is slightly bullish, as three out of five covering analysts rate the stock a "strong buy," compared to two "holds" and no "sell" or worse ratings. Additionally, El Pollo Loco Holdings Inc's consensus 12-month price target of $29.33 sits at a 22.7% premium to current trading levels. Short sellers have also had their eyes on the equity, as 28.8% of LOCO's available float is sold short, which would take over six sessions to cover, at average trading volumes. In the session immediately following its only two earnings reports, LOCO has gained an average of 1.2%. Short-term options for the security are currently available for average prices, as its SVI of 66% sits in the 44th percentile of its historic range.
 

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