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Aéropostale (ARO - option chain) shares are rising today on reports that the company has hired Barclays Capital as a strategic advisor to help ARO thwart potential private-equity buyers. According to the New York Post, which reported the move, ARO management wishes the company to remain public. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on ARO.ARO opened this morning at $24.57. So far today the stock has hit a low of $24.46 and a high of $25.26. As of 12:05, ARO is trading at $25.05 up $1.48 (6.3%). The chart for ARO looks bearish and S&P gives ARO a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in four months as long as ARO is above $20 at April expiration. Aéropostale would have to fall by more than 20% before we would start to lose money. Learn more about this type of trade here.
ARO has not been below $20 since December of last year and has shown support around $ recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in ARO.
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Reader Comments (Page 1 of 1)
2-15-2011 @ 1:49AM
remavq842 said...
This company has been takeover the bids.I am very happy and better opportunity for invester the invest the money in their company.This company hit the more company for share.