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Bulls won't quit on American Eagle

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Traders are betting that American Eagle Outfitters will rebound by the spring, the latest of several bullish option plays to target the name in recent months.

Nearly 13,000 March 13 calls traded in a strong buying pattern for $1.10 to $1.30 yesterday, according to optionMONSTER's Heat Seeker tracking system. Open interest in the strike was just 492 contracts before the session began, clearly showing that new positions were established.

The calls lock in the price where the stock can be purchased through mid-March no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but these in-the-money contracts will rapidly lose value if shares stall or decline. (See our Education section)

The trades follow heavy buying in the February calls earlier this month and May calls in December.

AEO gained 2.82 percent yesterday to close at $13.51 after hitting a two-year low of $12.59 in the previous session. The teen-apparel retailer gapped lower last Thursday with the sudden announcement that CEO Robert Hanson was leaving the company, news that led Stifel to downgrade the name to "hold" from "buy."

Total option volume in AEO was just shy of 28,500 contracts yesterday, 6 times its daily average for the last month. Overall calls outnumbered puts by more than 16 to 1, a reflection of the session's bullish sentiment.

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