Get Airborne with Aeropostale

Aeropostale, Inc. (ARO) shares are up more than 45 percent in 2008 despite a drop in consumer spending and a rise in inflation. The clothing retailer saw its same-store sales rise 13 percent in July and raised its second-quarter profit forecast, citing better than expected sales and gross margins. The performance comes in sharp contrast to competitors like Ambercrombie & Fitch (ANF) that reported falling same-store sales and new pressures on margins, and demonstrates strong brand strength despite the poor economy.

Investors bullish on Aeropostale during the long-term may want to consider LEAPS options. Currently, the 35 January ‘10 LEAPS are trading at a $9.00 premium. The breakeven on any position is therefore $43.71, or 25.9% higher than the current market price, within the next 515 days. Considering the stock has already moved more than 45 percent in 2008 and an economic recovery may be just on the horizon, many experts view these long-term options as a bargain at these levels.A

Aeropostale stock appears reasonably priced in today’s market with a PEG ratio of just 1.04. However, two analysts recently downgraded the stock saying that there may be better better entry points for the stock. The analysts also expressed concerns that year-ago comparisons will soon get more difficult, but noted there is still nothing wrong fundamentally with the company. Essentially, they are betting that there will be a pullback in which to add more shares later.

Investors should also carefully watch Aeropostale’s upcoming second-quarter earnings numbers to be announced on August 21st. Many are expecting the results to come in above last year, but some are concerned that expectations may be too high. The declining economy also has some concerned that the outlook would be lower-than-expected. As a result, prudent investors may want to consider waiting until after the results before purchasing a stake in the retailer.

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Options Predict Gold Recovery

SPDR Gold Trust (GLD) shares moved higher Monday as the markets declined sharply on bad housing and economic news. The call options in the stock were also very active several thousand contracts trading hands at the September ‘08 expiration. The move follows heavy trading last week where 10,000 of the September $85 calls were transacted. Gold prices have declined over the past few months, but some believe that recent turmoil in the financial markets may increase demand for the commodity.

Many experts attribute the fall in gold prices to the decline in the U.S. dollar since it is a dollar-priced asset. Many investors have also begun to move out of commodities and into stocks as they see value in today’s stock markets. However, the decline in gold has been far less than that of commodities in general while many experts even call it a healthy retracement. In fact, increases in the U.S. dollar and a continued decline in stocks may end up boosting prices for the commodity.

Gold has also historically been used as an inflation hedge, and there is clearly an inflation problem. The Consumer Price Index in July has increased 5.6 percent year-over-year thanks to higher food and energy costs. Meanwhile, many other economic threats in emerging markets and conflicts could help boost the price of gold. Finally, the increased threat of a worldwide recession could help spur demand for gold even further, which may have led to recent speculation.

SPDR Gold Trust, formerly StreetTRACKS Gold Trust, is an investment trust that holds gold, and from time to time, issues the SPDR Gold Shares in blocks of 100,000 shares (baskets) in exchange for deposits of gold and distributes gold in connection with redemptions of baskets. The shares represent units of fractional undivided beneficial interest in and ownership of the trust. The investment objective of the trust is for the shares to reflect the performance of gold bullion prices.

Alcoa Call Options Surge Higher

Alcoa Inc. (AA) shares moved lower Monday despite heavy volume in the stock’s call options. The September ‘08 calls saw more than 5,000 contracts trade hands, which is several times the average daily trading volume. The majority of these contracts were traded at the $32.50 strike with the $35.00 and $37.50 strikes also seeing higher-than-average trading volume. The move comes after more than 30,000 October $45 calls traded hands last week.

Alcoa is trading well off of its $44.77 52-week high as higher input costs continue to erode margins. Recently, the company announced that it would be raising prices in order to help compensate for these price increases. Alcoa Materials said it increased premiums for new businesses booked by 50 to 75 percent. It has also lifted premiums on aluminum billet alloy by 20 percent. Alcoa is hoping that these prices increases can help boost its margins.

During its most recent quarter, Alcoa posted better-than-expected profits as higher aluminum prices and sales volumes helped to offset increased costs. Strong demand for aluminum from China and other developing economies has helped support metal prices, but soaring inflation in raw materials and energy prices have eaten into the firm’s margins. Net earnings were $546 million, compared to $715 million the year before, but profit came in 2 cents better than many analysts were expecting.

Alcoa is engaged in the production and management of primary aluminum, fabricated aluminum, and alumina combined, through its active and growing participation in all aspects of the industry, including technology, mining, refining, smelting, fabricating, and recycling. Alcoa’s products are used worldwide in aircraft, automobiles, commercial transportation, packaging, consumer products, building and construction, and industrial applications.

AMAT Options Surge Higher

Applied Materials, Inc. (AMAT) shares surged higher despite a sharp drop in third-quarter earnings. The bullish sentiment was primarily due to comments by Chief Executive Mike Splinter, who believes the chip equipment maker has finally reached a bottom. Many investors were surprised by the strong silicon order guidance, but remain cautious given the weak demand in recent quarters.

Capital equipment makers like Applied Materials have seen a slowdown in orders from chip manufacturers, who are themelves dealing with slow demand in some market segments and excess supply in memory chips. Fundamentals are finally starting to shift in favor of a recovery, but there is still a great deal of uncertainty surrounding the industry. Regardless, many are now turning bullish.

Applied Materials options surged higher on the day with over 14,700 contracts trading hands, which is more than double its average daily volume. The majority of the action was centered on the August calls about to expire, but there was also substantial trading around the January ‘09 calls at the $19 strike. Currently, traders can acquire these LEAPS for a mere 8.6% premium.

Applied Materials provides nanomanufacturing technology solutions for the semiconductor, flat panel display, solar and related industries, with a portfolio of equipment, service and software products. The firm’s customers include manufacturers of semi-conductor chips and wafers, flat panel liquid crystal displays, photovoltaic cells and other electronic devices.

Nvidia Options Soar on Analyst Comments

NVIDIA Corporation (NVDA) shares jumped more than ten percent Wednesday after reporting a disappointing second-quarter just a day earlier. The bullishness has been attributed to comments made by Oppenheimer analyst Rick Schafer who issued an $18 price target on the chipset-maker, saying that the stock represents a compelling risk/reward play for fundamental investors heading into 2009.

Investors are also bullish on an announcement that it would increase its $1 billion share buyback, which should help drive earnings accretion. The repurchase program may now purchase up to $2.7 billion of its common stock. These programs also demonstrate management’s confidence in the company and higher hopes for the future.

The bullish sentiment also sparked interest in the options market, which traded at more than five times its average volume. More than 67,600 call contracts traded hands with the majority of the action centered around the September $15 calls. The option premium at this expiration suggests that traders believe shares will appreciate some 23 percent in just 37 days.

However, there are some traders that remain bearish on the firm. Management noted that the global desktop PC market weakened during the quarter, and many believe that these trends will continue in the future. Additionally, the company’s decision to focus on cost improvements suggests that do not have as much pricing power as they need to maintain margins.

Options activity suggests that traders are bullish on Nvidia during the next quarter, but remain somewhat bearish over the medium term. The company’s next quarter may benefit from cost reductions and share buybacks, but slower desktop PC-related sales may take awhile to recover. Meanwhile, laptop-related sales may be one of the remaining bright spots.

LDK Solar Options Surge Higher

LDK Solar Co., Ltd. (LDK) shares jumped sharply higher Tuesday after the solar giant blew away analyst estimates. Options traders were also very active with some 57,984 options traded, which is more than 14x the average volume of 4,025 contracts. The majority of the trading was the September $40 calls that saw some 10,902 contracts trade hands. The premiums indicate that traders now expect shares of LDK to reach $43.30 during the next month, which is a 9.9% premium in just 38 days.

The bullishness in LDK Solar is likely due to a 50 percent jump in wafer capacity, which resulted in sales that were up 89% over the first quarter. The average selling price for wafers also increased over the quarter, which resulted in even higher profit margins. Experts believe that it was this ability to pass on costs to customers that caused the bullishness despite a 25% jump in silicon costs, which had many investors worried last quarter.

The news caused LDK shares to rise nearly 18% while many options also saw spectacular price appreciation. The September $40 calls jumped from $1.20 to $3.30, which is a 175% move higher on the day. Options at other expirations had similar moves higher, which has many traders betting on similar moves in the near future. Some investors also picked up LEAPS options on the stock, which enable them to profit with less leverage but also less time risk.

LDK Solar is a manufacturer of multicrystalline solar wafers that are used to produce solar cells, which are devices capable of converting sunlight into electricity. The company sells these wafers globally to manufacturers of photovoltaic products, including solar cells and solar modules. Shares in the company remain substantially below their 52-week highs, but the news in recent days has increased investor confidence in the company.

Create a LEAPS Portfolio

Long-term equity anticipation securities – or LEAPS – are long-term options that can be used as a substitute for holding the underlying stock. LEAPS offer investors a way to create a large portfolio of stocks at a fraction of the cost with a more limited downside. This article will explore how average investors can create a diversified stock portfolio with LEAPS options in order to leverage their returns and reduce their risk. Read more

Simpson: Natural Gas Fears Overstated

XTO Energy (NYSE: XTO) Chairman and CEO Bob Simpson appeared on CNBC Tuesday defending the value of natural gas, saying that the fears of supply growth are overstated. The executive noted that natural gas is just now reaching 2001 production levels with demand remaining roughly the same. Meanwhile, underlying production wants to decline at a rate of 35%, which bodes well for the supply-demand equation. As a result, the executive came out bullish on natural gas.

The main cause for concern in the natural gas market has been recent discoveries in the shales that suggest huge reserves within the United States. However, Simpson insists that the infrastructure required to get at these reserves will take a lot of time and money to develop. He believes that the supply coming from these reserves will simply replace the gas coming from depleting wells right now. And regardless, he expects XTO Energy to be a major player in the shales.

Investors looking to bet on a long-term recovery in natural gas without a large capital outlay may want to consider LEAPS options. XTO Energy LEAPS calls are trading at somewhat hefty premiums due to the volatility of the stock, but some experts believe that it is the safest option. The most popular calls are the January ‘10 50s, which are trading at $9.00 per contract. The breakeven on this position is $59 while the initial investment is just $900 per hundred shares.

XTO Energy is engaged in the aquisition, development, expoitation and exploration of producing oil and gas properties, and in the production, processing, marketing and transportation of oil and natural gas. Its estimated proven reserves were 9.44 trillion cubic feet of natural gas, 67 million barrels of natural gas liquids, and 241 million Bbls of oil. The stock has dropped in recent weeks thanks to a sharp drop in both oil and natural gas.

Diana Options Surge Higher

Diana Shipping Inc. (DSX) shares rose sharply Monday after rivals Excel Maritime Carriers (EXM) and Eagle Bulk Shipping (EGLE) both reported stronger-than-expected earnings. Like Diana Shipping, the two shippers announced soaring second-quarter profits helped by higher freight rates and fleet utilization. The results represent a further boost to the sector as they also take action to increase their dividends and unlock shareholder value.

Interestingly, Diana Shipping displayed unusually high options volume in recent days before and after these earnings announcements. Some 61,668 contracts were traded on Monday, which is more than 15x the average daily volume of 4,044 contracts. The majority of these options are being traded in the August and September strikes, suggesting that shares will continue to rise in the short-term. The future remains somewhat uncertain, however, as the commodity sector continues to retract.

The bullish sentiment is likely due to strength in shipping prices worldwide. Eagle Bulk Shipping announced today that it saw a 121% increase in the charter rate for one of its supramax vessels, which is similar to that of others in the industry. Meanwhile, Excel Maritime saw its average time charter equivalent rose about 33% to $33,329 per day. These rates dramatically surpassed analyst estimates and the results continue to impress the street and drive strength in the sector.

Diana Shipping and others in the industry engage in shipping transportation services. Specifically, the companies transport dry bulk cargoes, including commodities like iron ore, coal, grain, and other minerals along global shipping routes. Reduced energy prices have lowered expenses, but commodities have also retracted slightly. However, most contracts are already inked in the long-term.

Home Depot Builds Itself Back Up

The Home Depot (HD) may be on the road to recovery and investors are ready to place their bets. Shares of the troubled home improvement retailer moved sharply higher during Monday’s action as the economy showed more signs of improvement. Lower oil prices and increased consumer confidence are igniting hopes that the housing market will show signs of a turnaround in the near future. Experts believe that LEAPS options may be the best way to play the sector given the risk to reward profile.

The market remains skeptical about a housing turnaround, which means that LEAPS options are still attractively priced. The popular January ‘10 30 callsare currently trading with a breakeven of just $34.30, which means investors are assuming Home Depot will rise less than 20% over the next 522 days. Those confident in a turnaround can pick up these options for just $440 per contract and realize substantial gains if there is a housing recovery.

Experts insist that the cheap price of the contracts allows investors to diversify into other asset classes while still realizing the gain as if they purchased 100 shares of Home Depot directly. The LEAPS options also have the added benefit of allowing a long period of time for a recovery and a slower time premium decay than shorter-term options. Finally, investors can also write short-term calls against the LEAPS in a diagonal spread to recoup some of their investment while waiting.

The profitability of the position relies on the success at Home Depot. Lower oil prices will help consumers in more than one way: Gasoline prices will decrease and the cost of many goods will also decrease. The result may be more money in consumers’ pockets along with a decrease in inflation as the price of goods decreases and the dollar’s value rises. Obviously, oil will have to remain low in order for these things to occur, which is the wild card, according to many analysts.

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