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Call Traders Target AEO Ahead of Earnings

There is plenty of short covering potential, too

Deputy Editor
Mar 2, 2022 at 1:51 PM
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Retailer American Eagle Outfitters Inc (NYSE:AEO) is set to report fourth-quarter results after the close today, in which analysts anticipate the company to post profits of 35 cents per share. AEO is up 3.6% at $21.22 ahead of the event. It's worth noting, however, that sector peer Abercrombie & Fitch (ANF) is down 16.5% after its own report, missing estimates due to weak holiday sales. 

Ahead of the event, the options pits are pricing in a post-earnings swing of 13.6%, regardless of direction, which is higher than the average 6.8% move following American Eagle's last eight reports. Of these eight, only two post-earnings sessions finished negative, including a 10.1% drop this past September. 

Options traders are leaning optimistic, with 6,775 calls and 4,334 puts across the tape so far today -- four times the intraday average. The weekly 3/4 23-strike call is the most active, followed by the weekly 3/4 18-strike put, with new positions being bought to open at both. 

In the past 50 days, 6.83 calls have been bought for every put at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio is higher than all other readings from the past year, showing options traders picking up long calls at a much faster-than-usual rate. 

It's also worth noting that short interest makes up 18.8% of the stock's available float. At AEO's average pace of trading, it would take nearly six days to buy back these bearish bets -- plenty of pent-up buying power. 

On the charts, AEO is coming off a Feb. 24 annual low of $19.22, and is sporting a 15.9% year-to-date deficit. Pressure at the 100-day moving average has guided the stock lower over the past few months.

AEO March2

 

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