(AZO) AutoZone Inc. December 2007 "Strangle" Strategy Calculations!

Here is a example of how to use the stock option “Strangle” strategy to take advantage of a potential big “price swing” when a company reports earnings! This strategy works best on “High Volatile” stocks that generally have big price swings after the earnings news is released!

These are the calculation screens for a "Strangle" strategy investment on AZO (AutoZone Inc.). Company reported “better-than-expected” 1^st quarter earnings on 12/04/07. The share price gapped up over $20 by the end of the day to close around $128.00!

The Share price was trading around $107 at the close on 12/03/07. Buying a "low-cost" Out-of-the-money "CALL" Option and a Low-cost "Put" Option together on the same underlying stock option symbol is what makes a "Strangle" transaction.

Having a position on both sides of the buying strategy gives you a better chance of capturing a excellent profit if there is a big swing in share price -- either up or down. In this case the price swing was over $20 to the upside.

The DEC 125 Call Option was trading around .40 cents at the close the day before earnings (12/03/07).

The DEC 95 Put Option was trading around .75 cents at the close the day before earnings. (12/03/07).

The next day (12/04/07) after the earnings news was released – Here’s what happened to the prices:

The DEC 125 Call Option had traded up to $6.00 at the close of the day!

The DEC 95 Put Option had fell to .10 cents at the close of the day!

10 Option Contracts calculated on "PUT" Options.

20 Option Contracts calculated on "Call" Options.
Spending relatively the same amount for the total of Call and Put Options gives you more of a even outlay investment balance.

The initial outlay of investment money was $1585.00

The big gap up in price in response to the good earnings news and positive overall comments about AZO helped boost the share price up tremendously!

Overall, this would have been a excellent "Strangle" Investment!

($11,140 Call Options Profit) - ($670 PUT Options Loss) = ($10,470 Overall Profit)

See the calculation screens below!

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