AutoZone Hits Historic Highs

As expected, AutoZone (AZO, $160.00, up $19.97) is trading at new highs after smashing Wall Street’s estimates. For the quarter, the company reported a profit of $116 million, or $2.03 per share, compared with $107 million, or $1.67 per share, versus last year. Revenue grew 8% to $1.45 billion.

Wall Street was expecting earnings of $1.85 per share, on revenue of $1.38 billion.

The trade we had going in AutoZone could have been played a couple of ways. You could have closed the put options out yesterday in anticipation of good news. The March 130 puts (AZOOF, $0.90, down $3.40) were going for $4.30+ all day long which was higher than the $3.90 from where they were originally profiled at. That would have netted you 10%.

The March 160 calls (AZOCL, $5.30, up $4.00) were going for $2.30 at the time the trade was profiled and are up 300% today. If you closed the call options right now then you would more than double your money.

If you held both parts of the trade through earnings then you are pretty much even. The total cost of the trade was $6.20 and both options together at today’s current prices give you $6.20. You could close the puts now and hope AutoZone continues higher or close the calls if the stock retreats. Either way, the trade should be closed today. I was hoping for at least 10% on the trade if you held through earnings but we knew AutoZone was going to zoom so some adjustments could have been made.

Bernanke is speaking and he looks nervous. The market is off its highs since he began addressing Congress as the Dow has slipped back below 6,800 and is only up 35 points. The Dow was up near 6,850 earlier this morning.

Rick Rouse
Rick@OptionsMentoring.com

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