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December 5, 2011  Mon 10:08 AM CT

AEO: SEE CHART GET CHAIN FIND STRATEGIES
For the second time in two sessions, option traders are betting that shares of American Eagle Outfitters will see limited gains in 2012.

AEO is trading at $14.74, up 4 percent on the day and 47 percent since its September low. This brings the apparel retailer's stock to its highest level since May, when it came off resistance at $16 that had held from February.

The option volume already exceeds 24,000 contracts just 90 minutes into the session, compared to a full-day average of 2,700 in the last month. Puts make up fewer than 1,000 of the contracts, while almost all of the action is in the January 2013 17 calls.

optionMONSTER systems show that 20,000 of those calls traded against open interest of 13,308. The big print of 19,263 contracts was sold for $1.25. This follows a range-bound trade Friday that is counting on the stock drifting sideways for 2012.

Today's call selling is a bet that AEO won't trade much above that level in the next year or so. If the calls were sold naked, this has an initial bearish bias. If they were sold against a long stock position as a covered call, it has an initial bullish bias. In either case, the trader doesn't see much upside beyond $17. (See our Education section)
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