EOT Trade Alert – June 5, 2009

| June 5, 2009

June 5, 2009

Trade Alert:

   Buy AAN November 2009 $40 Calls at $2.15 or better (AANKH)

Company Background:

Aaron’s (AAN) is a specialty retailer.  They lease, rent, and sell consumer electronics, computers, furniture, appliances, and accessories.

Short-Term Catalyst:

I don’t need to tell you how tight credit is right now.  Here’s the thing, it’s only going to get tighter for those with less than stellar credit.  New laws are putting the screws to the credit card companies.  Especially those that focus on the riskier or sub-prime credit card market.

That means a huge group of people are going to see their credit limits cut or cards revoked… if they haven’t been already!

The days of walking into a traditional retailer, like Best Buy, and plunking down plastic to buy a new flat screen, (or anything for that matter) are gone.

Americans aren’t going to stop buying flat screen TV’s.  No, they’ll just find another way to do it.

This is where Aaron’s comes in.  Their sales and lease ownership division focus on providing household goods (like TV’s) to people without access to traditional credit.

Revenues are already exploding.  They grew by 14.1% in the last year.  Outpacing the industry which clocked in at 5.4%.

But it doesn’t end there.  Aaron’s has been able to turn their increased revenue into earnings.  Their earnings jumped 54% over the last year.  And that’s before the credit card companies started cutting sub-prime credit cards.

I only see good things ahead for Aaron’s.

Trade Details:

Option Ticker Symbol: AANKH
Underlying Stock Symbol: AAN
Current Bid-Ask Price: $1.85 – $2.00
Option “Buy Up To” Price: $2.15
Break-Even On Stock At Expiration: $42.15
Maximum Risk Per Contract: $215

Exit Strategy:

AAN is trading at $33.44 per share.  Resistance levels will be at $37 and again at $42.  Remember, we want this stock to move higher.  Support levels will be at $28 and $26.25.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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