Bull Places Big Bet as American Eagle Outfitters Takes Flight

American Eagle Outfitters (AEO) is benefiting from bullish brokerage attention

by Alex Eppstein

Published on May 4, 2015 at 11:17 AM
Updated on Jul 13, 2020 at 2:27 PM

An "outperform" initiation and $20 price target at RBC have American Eagle Outfitters (NYSE:AEO) perched 4% higher at $16.59 -- and bringing its year-to-date lead north of 19%. Meanwhile, the apparel retailer's calls are trading at 50 times the usual midday rate, with one option bull responsible for a big chunk of it.

According to Trade-Alert, one speculator bought to open a 9,132-contract block of May 16 calls, confident AEO will extend its rally north of $16 through the close on Friday, May 15, when front-month options expire. Digging deeper, the trader paid a premium of $0.65 per contract, resulting in a total cash outlay of more than $590,000 (premium * number of contracts * 100 shares per contract) -- which represents his maximum potential loss, should the shares retreat below $16 by expiration.

Calls have long been the options of choice for American Eagle Outfitters (NYSE:AEO) traders. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), option players have bought to open more than 50 calls for every put. The resultant call/put volume ratio of 50.18 ranks in the 93rd percentile of its annual range.

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