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David Pinsen
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As the founder of Launching Innovation, David Pinsen has brought together a talented team of developers, designers, and academic finance experts to create easy-to-use tools to solve complex problems for investors. David Pinsen brings 17 years of business development, innovation, and financial... More
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  • How You Could've Gotten Paid To Hedge American Eagle Outfitters Yesterday 0 comments
    Aug 5, 2013 6:12 PM | about stocks: AEO

    Edit: This post was written on Monday, but by mistake wasn't published until today. So references below to "today" refer to Monday.

    One of the concerns often raised about hedging is the cost of it. But by scanning for optimal collars you can reduce the cost of hedging -- sometimes to the point where you can get paid to hedge. That was the case with American Eagle Outfitters (NYSE:AEO) earlier today.

    This was the optimal collar to hedge AEO against a >20% drop over the next several months, for an investor willing to cap his potential upside at 15% over the same time frame:

    As you can see at the bottom of the screen capture below, the cost of this optimal collar was negative, meaning you would have gotten paid to hedge in this case.

    AEO is currently down about 17.5% after hours after significantly lowering guidance.

    *Optimal collars are the ones that will give you the level of protection you want at the lowest net cost, while not limiting your potential upside by more than you specify. Portfolio Armor's algorithm to scan for optimal collars was developed in conjunction with a post-doctoral fellow in the financial engineering department at Princeton University. The screen captures above come from the Portfolio Armor iOS app.

    Stocks: AEO
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