Put Buyers Blast American Eagle Stock Ahead of Earnings

American Eagle will report third-quarter earnings next Wednesday

The shares of American Eagle Outfitters (NYSE:AEO) are down 3.2% to trade at $20.68 today. The stock initially got a halo lift from Abercrombie & Fitch (ANF) and its quarterly report, but it has ultimately pivoted lower.In response to the volatility today, and with American Eagle's own earnings report nearing, options traders are piling on with a bearish emphasis.

At last check, about 11,000 put options have changed hands, 14 times what's typically seen at this point in the day, with volume pacing for the 100th percentile of its annual range. Leading the charge is the December 22 put, where new positions are being opened for a volume-weighted average price (VWAP) of $2.25. For those buying the put, breakeven at options expiration is $19.75 (strike minus premium paid).

It should be noted that this option's time frame encompasses AEO's third-quarter earnings report, due out before the open next Wednesday, Dec. 5. Looking at the stock's post-earnings history, it has traded lower after six of the last eight earnings reports, including a 6.5% one-day drop last August. Looking back two years, the security averages a historical earnings move of 8.1%, regardless of direction. This time around, the options market is pricing in a larger-than-usual post-earnings move of 11.5%.

On the charts, American Eagle stock has been sliding since its 11-year high of $29.88 on Aug. 22. Amidst the channel of lower lows in recent months, breakout attempts have been thwarted by the shares' 50-day moving average. In addition, AEO is heading toward a 10.7% loss for November, its worse monthly drop since May 2017.

Should the stock's struggles continue, a shift of sentiment in the analyst community could act as a headwind. Of the 12 brokerages covering AEO, nine rate it a "strong buy."