American Eagle Outfitters Inc. (AEO) 11/20/09 PriceWatch Alert Support Down To $14.35

Posted: Friday, November 20, 2009 8:39 AM EDT
By: Market Intelligence Center Staff

American Eagle Outfitters Inc. (NYSE: AEO) closed yesterday at $14.84. So far the stock has hit a 52-week low of $6.98 and 52-week high of $19.86. American Eagle Outfitters stock has been showing support around 14.35 and resistance in the 15.55 range. Technical indicators for the stock are Bearish 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 May '10 12.50 covered call (AEO EV) for a net debit in the $11.64 area. That is also the break even stock price for this trade. This covered call has an 183 day duration, provides 21.56% downside protection and a 7.39% assigned return rate for a 14.74% 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 7.50 Call (VDM AU) and selling the May '10 12.50 call (AEO EV) for a $4.40 debit. The trade has an 183 day life and would provide 19.81% downside protection and a 13.64% assigned return rate for a 27.00% annualized return rate (for comparison purposes only). American Eagle Outfitters has a current annual dividend yield of 2.59%. [FBB-Seven Summits Research]