Will AOL Head Higher After Recent Headlines?

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With shares of AOL (NYSE:AOL) trading around $46, is AOL an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

AOL is a global Web services company with a range of brands and offerings that intrigue a global audience. The company’s business spans online content, products, and services which it offers to consumers, publishers and advertisers. Its business operations are focused on AOL Properties and Third Party Network. It offers a range of display advertising, including text and banner advertising, mobile, video, and rich media advertising, sponsorship of content offerings, and local and classified advertising. Through its broad network, AOL is able to offer content to a large user base.

AOL released fourth-quarter 2013 results on Thursday. “2013 was AOL’s most successful year in the last decade, and we accomplished our goal of industry level growth at scale for AOL,” said Tim Armstrong, AOL chairman and CEO. “AOL’s exceptionally talented team continues to execute against our strategy and our results show meaningful progress in the most important areas of media and technology. AOL plans to invest in our market leading strategies in 2014, while we continue to grow the company.”

T = Technicals on the Stock Chart Are Strong

AOL stock has been surging higher in recent times. However, the stock is currently trading sideways and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, AOL is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

AOL

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of AOL options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

AOL options

46.6%

40%

38%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

March Options

Flat

Average

April Options

Flat

Average

As of Thursday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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