Aeropostale (ARO) 3/12/10 PriceWatch Alert Targets 10.54% Downside Protection

Posted: Friday, March 12, 2010 8:36 AM EDT
By: Market Intelligence Center Staff

Aeropostale (NYSE: ARO) closed yesterday at $27.05. So far the stock has hit a 52-week low of $15.95 and 52-week high of $29.90. Aeropostale stock has been showing support around 25.78 and resistance in the 27.92 range. Technical indicators for the stock are Bullish 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 a Jul '10 26 covered call for a net debit in the $24.20 area. That is also the break even stock price for this trade. This covered call has a 127 day duration, provides 10.54% downside protection and a 7.44% assigned return rate for a 21.38% 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 20 Call and selling the Jul '10 26 call for a $5.55 debit. The trade has a 127 day life and would provide 5.55% downside protection and an 8.11% assigned return rate for a 23.00% annualized return rate (for comparison purposes only). Aeropostale does not pay dividends at this time. [FBB-Seven Summits Research]