Bulls Try on American Eagle for Size

Jul.22.10 | About: American Eagle (AEO)

By David Russell

American Eagle Outfitters (NYSE:AEO) has been holding a key support level at $12 for months, and now the bulls are trying the apparel stock on for size.
AEO Chart

optionMONSTER's Heat Seeker tracking system detected the purchase of more than 8,000 February 15 calls for $0.70 against open interest of just 522 contracts. The trade pushed total options volume in the beaten-down retailer to more than 4 times the average daily level.

AEO is up 2.99 percent to $12.40 in late morning trading and is pushing higher off the same level that served as support in July 2008 and resistance in March and April 2009. It had traded as high as $19.64 in March.

The company has led declines among other consumer-discretionary names since the spring. It provided weak second-quarter guidance on May 26, followed by disappointing June same-store sales earlier this month.

Today's call buyers apparently think the worst of the bad news is over and expect the shares to climb through early 2011. They need AEO to appreciate more than 26 percent through expiration for them to turn a profit.

Upcoming events that could serve as potential catalysts for the stock include the release of July same-store sales on Aug. 5 and fiscal second-quarter earnings on Aug. 25.

Calls outnumber puts by a bullish 46-to-1 ratio in the name so far today, according to the Heat Seeker.

Disclosure: No positions