Monday, October 24, 2011

American Eagle Outfitters (AEO) - LBO Rumor, Insider Buying and Skew Diffs Into Earnings

AEO is trading $13.40, up 3.1% with IV30™ rising 15.2%. The LIVEVOL® Pro Summary is below.


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American Eagle Outfitters, Inc. is an apparel and accessories retailer that operates more than 1,000 retail stores in the United States and Canada, and online at

This is an order flow note. Some interesting recent news on the company is included below.

10-24-2011: American Eagle trades to highs of the day, hearing LBO chatter making the rounds

10-13-2011: American Eagle target raised to $15 at Oppenheimer; compelling at current levels (12.38 )

9-26-2011: AEO Traded higher following Chairman and Director purchase of 1.12 mln share purchase at $10.79-11.28 worth $12.8 mln.

Source: Provided by (

Today the company has traded over 31,000 contracts on total daily average option volume of just 5,488. Calls have traded on a 16:1 ratio to puts with the action in the Nov 15 and 14 calls for the near-term options.  The Feb 15 calls have traed more than 14,000x on what seems to be one large purchase. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the Nov 15 calls are at least somewhat opening (compare OI to trade size). The Nov 14 calls are ambiguous as the existing OI trumps the trade volume today by more than 3x.

I believe the Nov 14 call OI is long as the interest dipped on 9-20-2011 after what seem to be sales on 9-19-2011. The trades today seem to be long, though it is a bit ambiguous. Nov 15 calls existing OI is ambiguous and the trades today feel long, though I'm not sure.

The Feb calls have traded size but on huge OI of over 65,000.  That OI looks to be long, but we can verify that tomorrow by seeing where the interest goes (i.e. up or down).

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see a slightly parabolic skew in the front two months, while Jan'12 isn't. That upside skew shape difference reflects a rather pronounced vol diff between the upsides in Nov and Dec relative to Jan'12. I've circled that difference on the chart.

The next earnings release is either due out right near Nov expo or right after. Last year it was 11-18-2010 but I see projections for both 11-17-2011 and 11-22-2011; so, there you go (Nov expo is 11-18-2011).

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

The stock has been headed straight up since late Aug. On the vol side, the implied has now taken a big step up and opened up a vol diff between both of the historical measures. Specifically:

IV30™: 48.75
HV20: 41.27
HV180: 38.46

It is worth noting that the 52 wk range for AEO IV30™ is [31.54, 66.51], so in English, the vol has a precedence for being substantially higher than the current level.

Possible Trades to Analyze
That upside vol diff looks interesting -- the concern being the potential of selling Nov earnings "accidentally." One interesting position to examine could be long the Jan'12 14.5 calls against the Nov 15 or 16 calls giving upside room with the diagonal strikes, selling higher vol than purchasing and potentially owning earnings for less vol than "not earnings."

This is trade analysis, not a recommendation.

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