Aeropostale (ARO) 11/6/09 PriceWatch Alert Targets 33.00% Return

Posted: Friday, November 06, 2009 8:27 AM EDT

Aeropostale (NYSE: ARO) closed yesterday at $33.47. 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 29.04 and resistance in the 39.48 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 a Jan '10 32 covered call (ARO AK) for a net debit in the $30.07 area. That is also the break even stock price for this trade. This covered call has a 71 day duration, provides 10.16% downside protection and a 6.42% assigned return rate for a 33.00% 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 10 Call (ZLX AB) and selling the Jan '10 32 call (ARO AK) for a $20.35 debit. The trade has a 71 day life and would provide 9.32% downside protection and an 8.11% assigned return rate for a 42.00% annualized return rate (for comparison purposes only). Aeropostale does not pay dividends at this time. [FBB-Seven Summits Research]

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