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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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Market Level Making You Nervous, Huh? Part 3

In last week's article, we discussed how important the extra cash you save by using the Stock Replacement Strategy over buying the actual stock is! That extra cash in our account instead of being unnecessarily tied up in a stock position allows us to buy the puts we would need to protect our downside in the case of a major sell-off.

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