AutoZone (AZO, $135.42, up $0.42) traded lower most of the session until a late day rally pushed the stock into positive territory. With the Dow tanking 200 points to start the morning, AutoZone followed suit after a higher opening.

Today got ugly after Wal-Mart (WMT, $51.38, down $4.16) warned and a few not so good economic reports pointed towards more trouble ahead for the economy. Consumer borrowing — credit card use and items such as new auto loans — plunged by $8 billion in November, a record amount in dollar terms. Then there was a report that jobless benefits rose last week, more than at any time since the 1982 recession.

However, once news hit that the government reached an agreement with Citigroup (C, $7.16, up $0.01) on taking care of some more mortgage debt, the market rallied. The plan will allow bankruptcy judges to alter loans in an effort to prevent homes from going into foreclosure. And like a tide that lifts all boats, AutoZone rebounded with the rest of the market.

The stock traded below $133 at one point which put the February 115 puts (AZONC, $3.00, down $0.10) at $3.40 which was good for a 10% gain so far. Our target area was $4 and although we didn’t get there, it sure looked like we would. Now we are back to even.

Sometimes getting exact exit targets can be tricky and I would hate for the position to get stopped out before reaching its target. However, that is the nature of the game when it comes to trading options.

Our stop is set at $2.00 and the market could be set for a shocker on Friday. We get the new unemployment numbers and I don’t need to remind you that figure stood at 6.7% before Friday’s numbers come out. Anything north of 7% could spell trouble for the Dow.

Rick Rouse
Rick@OptionsMentoring.com

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