Abercrombie & Fitch (ANF), once the clothing provider of choice for the cool kids, has been declared decidedly uncool by Wall Street. At least that’s the message that’s been broadcast by ANF stock over the past four years, tumbling from a lofty $78 to a lowly $15.
Those who have left ANF for dead ought to take a fresh look. It’s resurrection has commenced and things are looking lively once again. To wit: prices of ANF stock have now rallied 77% off their 52-week lows.
Think it’s too easy for a $15 stock to score that type of gain? How about this: the 200-day moving average, the ultimate indicator of long-term trends, is now rising for the first time in 18 months. This ain’t some puny retracement we’re talking about here. It could be a real deal turnaround.
So what spurred the miraculous recovery? Earnings that sucked decidedly less than expected.
Low sales deterioration aplenty has been baked into the ANF cake. As such, even the slightest glimmer of earnings hope can spark an epic short covering rally. And spark one it did.
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The latest development in Abercrombie stock’s turnaround saga was Tuesday’s 6% high volume surge carrying its price from the low-end to the high-end of its recent range.
If recent activity is any indication it may be the gift that keeps on giving. And with a breakout in the offing, ANF stock maybe one of the best things to toss in your stocking.
The ANF Stock Trade
To position yourself for profits amid ANF stock’s continued ascension consider buying the March $27/$30 call spread for $1.24 or better.
The $3 wide call vertical spread has the potential to grow to $3 in value over the coming months if ANF stock price can reach $30 by March expiration.
Since the initial cost was $1.24, the potential reward comes out to $1.76, offering the potential for more than doubling your dough.
The max risk is limited to the initial $1.24 and will be forfeited if ANF stock price sits below $27 at expiration. If you’re not a fan of risking the entire $1.24, consider bailing if ANF stock breaks the $25 support level.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
