American Eagle Outfitters, Inc. (AEO) Calls Fly on Earnings Beat

American Eagle Outfitters (AEO) is seeing intense call buying amid an earnings-induced rally

by Alex Eppstein

Published on May 20, 2015 at 10:57 AM
Updated on Jun 24, 2020 at 10:16 AM

American Eagle Outfitters (NYSE:AEO) is rallying on a first-quarter earnings beat and encouraging current-quarter guidance. At last check, shares of the retailer were 3.3% higher at $16.26. The upward move has caught the attention of options traders, who are wagering on additional short-term upside.

Jumping right in, AEO calls are crossing the tape at six times the usual intraday rate, and more than double the pace of puts. Leading the way is the June 17 call, with all indications pointing to buy-to-open activity. By initiating these positions, option bulls think AEO will topple $17 by the close on Friday, June 19, when front-month contracts expire. Earlier, the shares hit an intraday high of $17.06.

Today's penchant for call buying represents a break from the prevailing trend. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AEO has accrued a put/call volume ratio of 1.19 -- in the top quartile of its annual range.

Short sellers have also been betting against the equity. Over 13% of AEO's float is sold short, which would take upwards of six sessions to buy back, assuming average daily trading volumes.

On the charts, American Eagle Outfitters (NYSE:AEO) has been pulling back from a mid-April annual high of $18.12. Longer term, however, the shares have outperformed, tacking on 17.1% year-to-date. What's more, the retailer is set to end atop its 10-day and 20-day moving averages for the first time in more than a month. 

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