Aeropostale Options (ARO): Unusual Trading Activity
Options in big retailer Aeropostale (ARO) traded some large volume yesterday afternoon.
Even though retail earnings have been less than stellar, ARO bulls don’t seem to be done shopping just yet.
According to our tracking system, Aeropostale has been ripping higher lately, and the bulls are looking for even more gains over the next few months.
Yesterday before the close, we detected the purchase of 9,500 ARO September $21 strike call options.
With ARO up fractionally today at $20.17, the calls went off at $1.05 a piece.
This gives traders six weeks to see unlimited upside profit above $22.05. And remember, ARO peaked at $23 a share earlier this year, which is making option traders think on any rally it could hit that number in a hurry.
In addition, option volume was 11 times greater than average in yesterday’s session, with calls outnumbering puts by more than 160 to 1.
So, the question is, why so many call options on this mediocre retailer?
As most of you know, Aeropostale is a mall-based retailer of apparel and accessories.
They target 14- to 17-year-old kids through their Aeropostale stores and 7- to 12 year-olds through kids stores.
The company provides a selection of fashion basics at compelling values.
Here’s the thing…
After getting beaten down heavily during the last month or so, ARO is now surging higher on its recent earnings announcement.
What’s more, continued high unemployment rates among teens could bode well for this low-priced retailer. It’s a no-brainer that many of these out-of-work teens will continue to look for lower price point alternatives in order to stretch their budgets.
The value proposition that Aéropostale has historically offered versus its competitors should resonate across all demographic bases, including parents that purchase for their children.
In addition, ARO will benefit from shorter lead times and improved sell-through as their supply chain efficiencies and product allocation systems operate appropriately faster.
I think this is exactly what options traders are betting on here.
Let’s wait a few days and see how this plays out!
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
