The Trade Process starring Aeropostale

I am an opportunistic trader

There are several key areas within my trading process that deal with what I call catalyst trades. Earnings trades fit into this bucket of trades that I want to do. This past week was an important week for Retail earnings and we got a lot of clues about the health of that Industry, especially in teen retailing.

One of the companies that reported was $ARO and the reaction was not kind to those holding the stock: it closed down 20.22% on Friday. I like to trade out-sized moves so this certainly meets that criteria. In addition I did spend some time getting educated on one of the key FA issues impacting this industry: Fast Fashion.

I did keep an eye on the stock throughout the day Friday looking for the usual signs of a real bottoming process – where the Bulls would defend a level. I ultimately settled on this trade idea and put in a bid for a $.60 credit:

ARO_tradeHere is a quick break down of this trade idea:

  • I would be short the October 9 Puts
  • I would be long the September 8 Puts
  • If/when filled I will have a $.60 credit (could be a gain, could use to buy a Call Spread once a rebound commences – thus making a Risk Reversal CS trade)
  • The October 9/11 Call Spread closed at $.42 on Friday as an example

Although this trade did not fill Friday, I will try again on Monday as I prefer this structure right now for a rebound at some point (Relief Rally, short squeeze, etc).

Here is a Daily chart showing the crashing satellite move it took Friday:


5 thoughts on “The Trade Process starring Aeropostale

  1. Nice strategy. ARO has not traded at these levels since 2009. As we all know that was the bottom of the recent stock market crash. ARO is projected to have negative earnings for the near term but we have seen many times where teen fashion companies get hit (ANF) as an example and quickly bounce back as they change their styles to teen tastes and teens start buying them again. Back to school shopping is happening now and in 3 months is the busiest time of year for these guys. Although not priced at going out of business a 50% haircut in 1 month provides a substantial margin of safety, at least for an intial position.

  2. yes, I think RSI agrees with you. Risk is to the upside now for the near term me thinks.

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