Three-way spread in American Eagle
Chris McKhann | [email protected]
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)