Mike Khouw's Advanced Auto Parts Trade

On CNBC's "Options Action," Mike Khouw suggested investors should consider a bullish options strategy in Advance Auto Parts, Inc. AAP ahead of earnings. The company is going to report earnings on August 24.

Khouw said options premiums are slightly elevated going into earnings so he wants to take advantage of that and sell a put spread. He wants to sell the September $210/$200 put spread for a credit of $4. The trade breaks even at $206 or 1.76% below the closing price on Friday. If the stock drops to $200 or lower at the September expiration, the trade is going to reach its maximal loss of $6.