Options Traders Revved up Profits in $AZO

Option traders understand how to buy and sell options to their advantage.  There are times when you think a stock will move and times you think it will sit still for a given period of time.  There are multiple option strategies to take advantage of both of these styles depending on time and volatility structure of the options prices. One option strategy that we regularly utilize is the Iron Condor.  This option trading strategy profits when a stock stays within a range over a given period of time.  Most of our option trades are about 8-9 days long.

A great example of a successful Iron Condor trade is one that our subscribers of the Time Bandit option trading service just closed out on July 27th.  They entered the trade on Wednesday July 18th.  Subscribers jumped into Autozone ($AZO) when the stock was around $691.03.  They entered the 660-725 Iron Condor that expired on July 27th.  Analysis showed good support and resistance combined with a good implied volatility structure to pick these strikes.  Option traders bought the 650 puts and 735 calls as protection and sold the 660 puts and 725 calls to collect the premium.  Traders were able to collect about $1.85 or $185 per spread.  The “At the Money” straddle was trading for $24.15 and the stock was moving with an average range of about $12.59.  All three moving averages were below the current stock price and the 50 and 200 simple moving averages were above the short put strike and should act as support areas.

As you can see from the chart below the stock had a nice run up and came close to breaking the short strike but failed to breach,  The stock only reached a high of  $724.54.  It settled in to close at $699.78 to allow us to collect the full premium.

The $185 premium represented a 22.6% return on risk.