American Eagle Outfitters Inc. (AEO) Trading Just Under Its 52 Week High

Posted: Thursday, March 18, 2010 9:28 AM EDT
By: Market Intelligence Center Staff

American Eagle Outfitters Inc. (NYSE: AEO) closed yesterday at $19.00. So far the stock has hit a 52-week low of $10.49 and 52-week high of $19.86. American Eagle Outfitters stock has been showing support around 18.70 and resistance in the 19.34 range. Technical indicators for the stock are Bullish and S&P gives AEO a neutral 3 STAR (out of 5) hold rating. AEO appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Aug '10 17.50 covered call for a net debit in the $16.55 area. That is also the break even stock price for this trade. This covered call has a 156 day duration, provides 12.89% downside protection and a 5.74% assigned return rate for a 13.43% 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 AEO Jan '11 12.50 Call and selling the Aug '10 17.50 call for a $4.30 debit. The trade has a 156 day life and would provide 11.58% downside protection and a 16.28% assigned return rate for a 38.00% annualized return rate (for comparison purposes only). American Eagle Outfitters has a current annual dividend yield of 2.11%. [THA-Seven Summits Research]