Option Bears Target Struggling American Eagle Outfitters (AEO)

American Eagle Outfitters is following rival Abercrombie & Fitch Co. lower


Published on Nov 7, 2014 at 2:16 PM
Updated on Apr 20, 2015 at 5:32 PM

American Eagle Outfitters (NYSE:AEO) is swooning in sympathy with fellow teen apparel retailer Abercrombie & Fitch Co. (NYSE:ANF), off 5.7% at $13.03. Not surprisingly, put traders have been active in AEO's options pits, with the contracts crossing at double the expected intraday clip. What's more, the stock's 30-day at-the-money implied volatility (IV) has spiked 11.1% to 54.4%, hinting at strong demand for short-term strikes.

Speaking of which, the November 13 put is seeing more action than any other strike, as 5,777 contracts have changed hands so far. Almost all of them have done so at the ask price, IV is higher, and volume tops open interest, collectively suggesting newly bought bearish bets.

Long story short, these speculators anticipate AEO will lose its foothold atop $13 by the close on Friday, Nov. 21, when front-month options expire. Delta on the at-the-money put is negative 0.47 -- compared to negative 0.24 last night -- meaning the market is giving the option a roughly 1-in-2 chance of being in the money at expiration.

Today's steep losses are more of the same for American Eagle Outfitters (NYSE:AEO), which has given back more than 9% of its value in 2014. However, the $13 area has served as a reliable layer of support in recent weeks, as has the stock's 20-week moving average, currently docked at $12.64.

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