AOL Inc (AOL) is a global Web services company providing online content and other products to online consumers, businesses and advertisers. The company’s stock is currently trading around $34.70 in a 52 week range of $29.16-$43.93. The stock has been performed well this year, but is lagging the market some, rallying over 17% year to date. Although the stock has been lagging the market this year options action on Friday suggests that there could be more upside in AOL this year. Half way through Friday’s trading session a trader sold 10,000 AOL Apr 28 puts for $1.40 when the stock was trading at $33.70. This is a very bullish trade that carries a high level of risk. The high level of conviction this trader is showing indicates there is a high probability the stock will be above $28 on April expiration. We will look to get long AOL through April as a long term trade set up.
Trade: Buying the AOL Apr 32-37 Call Spread for $2.50
Risk: $250 per 1 lot
Reward: $250 per 1 lot
Breakeven: $34.50
In this trade a trader can double their money if stock trades above $37.00 on April expiration. This trade also has a very well defined risk profile and allows a trader to take a long term view on AOL without the risk of being stopped out.
