The holidays have passed, but Costco bears seem to think that
Christmas has just begun.
optionMONSTER's Depth Charge tracking program detected the purchase
of about 1,500 April 100 puts on the warehouse retailer for about
$3.25. Blocks of a similar size were sold in the April 95 puts for
$1.63 and the April 93s for $1.25. Volume exceeded open interest in
all three, indicating that a new position was initiated.
Known as a bearish "
," the trade cost $0.37 and will earn a maximum profit of 1,251
percent if COST falls to between $95 and $93 on expiration. Gains
will erode below $93, turning to losses under $88 because of the
greater number of
puts sold short
COST rose 0.05 percent to $101.23 yesterday. The stock has spent
the last three months hovering around all-time highs near $100,
which be leading some investors to think that it's susceptible to a
The trader likely owns COST shares and is using the puts to hedge
against a drop. As a long-term investor in the name, he or she is
probably willing to be assigned more shares if they go below $93.
The Christmas tree hedges their existing position against a drop to
that level, while simultaneously programming a buy order if it
occurs. If the stock continues to rally, they'd only lose the $0.37
Total option volume in the stock was twice the daily average, with
puts accounting for three-quarters of the total.
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