AZO Analysis

AutoZone Inc. (AZO)

AZO publishes earnings on Tuesday before the opening bell.

I shall use the series of monthly options that trade for the last time 25 days hence, on June 19.

Implied volatility stands at 25%, which is 2.2 times the VIX, a measure of the volatility of the S&P 500 index.

AZO’s IV stands in the 77th percentile of its annual range and the 78th percentile of its most recent broad movement.

The price used for analysis was $665.45.

Premium: $29.47 Expire OTM  
AZO-iron fly Strike Odds Delta
Long 720.00 93.5% 7
Break-even 699.47
Short 670.00 56.0% 47
Puts
Short 670.00 43.9% 54
Break-even 639.47
Long 610.00 87.5% 11

The premium is 54% of the width of the position’s wings.

The risk/reward ratio is 1:1.

Decision for My Account

If AZO were a cheaper stock, I would take this trade. However, at $665 per share, a single iron condor presents more than $3,000 in risk. My model is small trades — with risk of $500-$700, so the AZO trade would be as much as six times my guidelines. Therefore, I am passing on the trade.However, it would certainly be suitable for traders with a higher risk model.

And a shoutout to CEO William Rhodes: Time for stock split, yes?

By Tim Bovee, Portland, Oregon, May 22, 2017

One thought on “AZO Analysis

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