Option Traders Cash in $AZO

Stock selection is critical when you are trading options.  Once you have your stock and your option strategy you want the stock to behave as you think it will.  In our Time Bandit Option trading service we focus on Iron Condor trades where we sell options on either side of the stock price and want it to stay within the range until expiration.  As long as it stays within the range we collect the full amount of premium that we sold.  We do these with a high success ratio, but there are always a few that test the boundaries.  For example we just closed Autozone ($AZO) for almost full profit.  We originally sold the 660-737.5 Iron Condor for about $1.50 when stock was at $701.00.

We had good support areas to the downside with the 20, 50 and 200 simple moving averages all below the current stock price and above our short put strike of 660.  For this option strategy we bought the 650 put and 747.5 call and sold the 660 put and 737.5 call.  Maximum risk on this trade was $8.50 with the stock either $51 lower or $46.5 higher.

As you can see from the chart below the stock had one thing on its mind…getting to our short strike.  We sell our short strikes as close as possible to a support and resistance areas to help with the defensive nature of this option strategy.

The stock broke our short strike on Wednesday August 8th, getting up to $738.10 but closing below the short strike.  It tested higher on Thursday August 9th by getting up to $739.49, but failed again to close above the strike.  Friday we were fortunate to have the market open lower and trade lower.  $AZO followed along by opening at $734.85 and trading lower.  We suggested the purchase of the short calls at 9:46 AM with stock at $727.  Subscribers reported buying their short calls back for $0.20 shortly after.  The stock continued to trade down to $722 at 10 AM.  Then the stock turned bullish and climbed back up to a new swing high of $741.10 by 3:24 PM.  If subscribers had not purchased their calls back early they would be facing a $2.10 loss(at the high) vs having a $1.30 gain( premium of ($1.50 less the $.20 call purchase).

In the end, a little luck and smart trade management gave a great example to share so everyone can learn from it.  Total profit was $130 per one lot option spread that was entered.  This was a 15.29 % return on risk.