Aeropostale (ARO) PriceWatch Alert With $28.75 Break Even

Posted on Wednesday, July 23, 2008 8:07 AM

Aeropostale (NYSE: ARO) closed yesterday at $34.25. So far the stock has hit a 52-week low of $18.29 and 52-week high of $36.02. Aeropostale stock has been showing support around 30.12 and resistance in the 36.40 range. Technical indicators for the stock are Bullish and S&P gives ARO a neutral 3 STAR (out of 5) hold rating. ARO appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a Sep '08 30 covered call (ARO IF) for a net debit in the $28.75 area. That is also the break even stock price for this trade. This covered call has a 59 day duration, provides 16.06% downside protection and a 4.35% assigned return rate for a 26.90% 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 '09 15 Call (ARO AC) and selling the Sep '08 30 call (ARO IF) for a $14.15 debit. The trade has a 59 day life and would provide 14.89% downside protection and a 6.01% assigned return rate for a 37.00% annualized return rate (for comparison purposes only). Aeropostale does not pay dividends at this time. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]