Won't Be Tinkering in AutoZone

Tomorrow morning, traders are set to step into the zone -- AutoZone (AZO) -- as the auto-parts retailer announces earnings. Reading around the stream and other media outlets, it seems the slam-dunk play is to be on the short side. The broader sector has been hit with several warnings, although AutoZone has somehow been able to continually exceed expectations. Although I see a descending triangle outlined by many in the charts, I am seeing more of a bearish channel.

AutoZone (AZO) -- Daily Source: StockCharts.com View Chart » View in New Window »

Overall, AutoZone is still bearish for the longer term, but I'm not so sold on that idea into earnings. The stock is at the bottom of the channel, so a bounce back toward the top of the channel could be in store for the stock after the release. Normally, it would be simple to buy the stock here and set a stop just outside of the channel, but with the earnings catalyst upon us, that trade can't be taken. Instead, if one wanted to mimic buying the stock and using the channel as a stop, then I'd use a September $350-$370-$380 skip strike butterfly in the $8 to $8.25 price area. The options are thin and the spreads are wide, so exact pricing is tough here....355 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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