AEO – American Eagle Outfitters – Shares in teen apparel retailer American Eagle Outfitters rallied as much as 4.4% to $15.52 in the early going on Tuesday, rising in sympathy with competitor Aeropostale on reports private equity firm, Sycamore Partners, has taken a roughly 8.0% stake in the company. Shares in Aeropostale jumped 20% on the news to a three-week high of $10.32.
Traders positioning for shares in American Eagle to extend gains in the near term snapped up October expiry call options straight out of the gate this morning. The Oct $16 strike calls are the most active contracts on AEO by volume today, with upwards of 12,000 lots in play against open interest of just 340 contracts. Time and sales data indicates most of the calls were purchased for an average premium of $0.27 each. Traders long the $16 strike calls stand ready to profit at expiration next month should shares in AEO rise 4.8% over today’s high of $15.52 to exceed the average breakeven price of $16.27.
Aeropostale options are also changing hands today, with notable fresh interest building in the Jan 2014 $12 strike calls. It looks like more than 1,900 of the $12 calls were purchased during morning trading for an average premium of $0.51 each. The $12 strike calls may be profitable at expiration next year given a more than 21% increase in the price of ARO shares to top the breakeven price of $12.51.