AutoZone, Inc. Spooks Skeptics with Solid Price Action

04/15/2009 10:31 am EST

Focus: STOCKS

Nick Perry

Equity Options Trader, Schaeffer's Investment Research

AutoZone, Inc. (AZO) is locked in a steady uptrend, but the stock just can't seem to impress skeptical option traders. During the past five days, traders on the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE) have bought 3,953 puts on AZO, compared to just 1,238 calls. In other words, investors on these two exchanges have purchased 3.19 times more bearish bets than bullish within the past week.

On the ISE alone, traders have purchased 2.81 puts for every call during the past ten days. This ratio ranks higher than 78% of other such readings taken during the past year, indicating that puts on AZO are in greater demand than usual.

AZO short interestIn the April series, put players have set their sights on the 140 put, with open interest of 4,869 contracts, and the 150 put, with open interest of 4,853 contracts. With AZO trading near $158 per share at last check, both of these options are currently out of the money. This configuration reveals that many short-term speculators are betting on the shares to plunge from their current perch.

Short sellers have also amassed some serious bets on the stock's decline. Currently, short interest accounts for 11.1% of AZO's float, or five times its average daily trading volume. However, a few of these skeptics have already been forced to buy back their bearish bets. Short interest fell by 3.9% during the most recent reporting period as AZO explored new all-time highs.

With the stock's technical setup showing no signs of weakness, this widespread pessimism seems out of place. As the bearish sentiment on Wall Street gradually unwinds, look for AZO to continue its uptrend.

By Nick Perry of Schaeffer’s Trading Floor Blog

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