American Eagle Outfitters Inc. (AEO) PriceWatch Alert Targets 17.26% Return

Posted: Tuesday, June 30, 2009 8:07 AM EDT
By: Market Intelligence Center Staff

American Eagle Outfitters Inc. (NYSE: AEO) closed yesterday at $14.32. So far the stock has hit a 52-week low of $6.98 and 52-week high of $18.00. American Eagle Outfitters stock has been showing support around 13.85 and resistance in the 14.73 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 a Jan '10 12.50 covered call (AEO AV) for a net debit in the $11.42 area. That is also the break even stock price for this trade. This covered call has a 200 day duration, provides 20.25% downside protection and a 9.46% assigned return rate for a 17.26% 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 5 Call (VDM AA) and selling the Jan '10 12.50 call (AEO AV) for a $6.55 debit. The trade has a 200 day life and would provide 19.34% downside protection and a 14.50% assigned return rate for a 26.00% annualized return rate (for comparison purposes only). American Eagle Outfitters has a current annual dividend yield of 2.80%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]