Bearish position targets Aeropostale

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Aeropostale is already near its lows for the year, but one trader is preparing for even more potential losses in the clothing retailer's shares.

More than 7,000 January 11 puts traded in a strong buying pattern on Friday with large blocks going for $0.20, $0.25, and $0.30, according to optionMONSTER's Depth Charge tracking system. The volume was 4 times higher than the strike's open interest of 1,789 at the beginning of the day, clearly indicating that these are fresh purchases.

The puts were not tied to any stock trading identified by our systems that day, though they could have been bought to hedge a long position established earlier. The options could also have been purchased as a straight bearish bet that the stock would drop roughly 15 percent by the time they expire on Jan. 18, a little more than a week after the company is scheduled to issue a holiday-sales update on Jan. 10. (See our Education section)

ARO finished Friday unchanged at $12.58, not far from the 52-week low of $11.76 reached at the end of October. Shares are now back at the lower end of their recent range after falling below their 50-day moving average on Dec. 21.

The stock gapped down from the $20 level to about $13 on Aug. 2 when the company reported weak same-store sales and lowered guidance. Aeropostale had been trying to recover and was trading above $14 about two weeks ago, but it took another hit along with many other retailers as the industry faced projections of a weak holiday-shopping season.

Friday's trading drove total option volume in ARO to 10,899 contracts, 10 times its daily average for the last month. Puts outnumbered calls by nearly 5 to 1, a reflection of the session's bearish sentiment.

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