OptionsHouse

Options Trading News

October 3, 2012  Wed 9:17 AM CT

AEO: SEE CHART GET CHAIN FIND STRATEGIES
A long-term spread tops the option trading in American Eagle Outfitters as its shares hold support.

AEO is up 1.24 percent this morning at $21.27. The clothing retailer has held the $21 level for the last couple of weeks after it came down from three-year highs just below $24. Shares are about double what they were at the lows of a year ago.

Today's option volume is dominated by a January 2014 three-way spread, according to optionMONSTER's systems. A trader sold 5,000 of the 18.50 puts for the bid price of $2.35, sold 5,000 of the 30 calls for $0.55, then bought 5,000 of the 22 calls for the ask price of $3.10. The open interest was essentially non-existent at all three strikes, clearly indicating that this is new positioning.

The spread is bullish up to $30. The trader is spending $0.20 for that exposure, which is the amount at risk if AEO remains between $18.50 and $20 through expiration. The trader is also willing to buy shares below that lower strike price if assigned. (See our Education section)
Share this article with your friends


OptionsHouse

Premium Services

Upcoming Webinar:

Using Options For Income

http://bit.ly/1nY1OKA

Jon Najarian and Adam Mesh of Options Wealth Machine discuss a detailed strategy utilizing credit spreads to generate income, and how any level of trader can use this simple trading technique.

Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

View more education articles »