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October 2, 2012  Tue 9:28 AM CT

ANF: SEE CHART GET CHAIN FIND STRATEGIES
Abercrombie & Fitch has been trying to bottom, and one investor expects a rally soon.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 2,200 November 35 calls for $1.87 and the sale of an equal number of November 27 puts for $0.52. Volume was more than twice open interest at both strikes.

The trade cost $1.35 and is leveraged to upside in the clothing retailer, with the long calls appreciating in the event of a rally while the short puts will dwindle in value. Just the opposite will happen to the downside.

The advantage of the position versus simply owning shares is that it's relatively inexpensive and lets the investor benefit from higher prices in the next two months. Aside from the initial $1.35 outlay, he or she may consider the risk of additional loss minimal because the stock would have to go below $27 for the puts to generate a loss. It hasn't been that low in more than three years. (See our Education section)

ANF is off 0.37 percent to $33.33 in morning trading. It's down by about 35 percent in the last six months but has been holding its lows since then. Management is also scheduled to appear at the Telsey Advisory Group Fall Consumer Conference at 12:55 p.m. ET today.
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Real vs. Synthetic

We now know that there are two ways of creating a call position, a put position, and a stock position. We can simply use the actual real security or we can recreate it synthetically. We can create these positions in both long and short forms and this ability sets up an interesting scenario--an arbitrage!

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