Aeropostale (ARO) 11/23/09 PriceWatch Alert Targets 26.83% Return

Posted: Monday, November 23, 2009 8:06 AM EDT

Aeropostale (NYSE: ARO) closed yesterday at $31.91. So far the stock has hit a 52-week low of $12.52 and 52-week high of $44.85. Aeropostale stock has been showing support around 30.96 and resistance in the 33.08 range. Technical indicators for the stock are Bearish and S&P gives ARO a positive 4 STAR (out of 5) buy rating. ARO appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '10 30 covered call (ARO DF) for a net debit in the $27.11 area. That is also the break even stock price for this trade. This covered call has a 145 day duration, provides 15.04% downside protection and a 10.66% assigned return rate for a 26.83% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the ARO Jan '11 15 Call (ZLX AC) and selling the Apr '10 30 call (ARO DF) for a $13.10 debit. The trade has a 145 day life and would provide 11.94% downside protection and a 14.50% assigned return rate for a 37.00% annualized return rate (for comparison purposes only). Aeropostale does not pay dividends at this time. [ABR-Seven Summits Research]

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