• 
• See all for optionMONSTER
• View Print Version

• Trader bets Petrobras will hold levels
• Range-bound trade targets Seagate

• COST 83% Rate It

One investor is managing risk as Costco Wholesale flirts with record highs.

optionMONSTER's Depth Charge monitoring program detected a large, complex strategy in the retailing giant. While bearish on the surface, it probably reflects a more optimistic outlook on the stock over the longer term.

He or she bought 2,500 August 92.50 puts for $2.55 and sold an equal number of August 97.50 calls for $0.56. They also sold 5,000 August 87.50 puts for $0.945. Volume was more than 10 times open interest at all three strikes.

It cost just $0.10 per put contract bought and will earn a maximum profit of 4,900 percent if COST closes at $87.50 on expiration. The trader will be forced to buy shares below that level and must sell shares for $97.50 if they go above that price.

COST gained 1.75 percent to close at $92.92 yesterday and is up 10 percent in the last month. The stock is now consolidating around its previous highs established in March, following several strong earnings reports.

The trade was probably the work of an investor who owns shares and is seeking protection against a decline to $87.50. Because the trader likes the name, he or she is also willing to buy more if it falls that low. (Losses from the drop would be minimal because of the August 92.50 puts.) The trader is also willing to sell if it rips to $97.50.

The transaction combines elements of a collar with a ratio spread . (See our Education section)

Overall option volume is 5 times greater than average so far in the session.

Related Options Articles

• 
  Dow Pares Gain to 110 Points as Fed Chatter Hits Fever Pitch
  6/17/2013 04:20 PM
• 
  Option Bulls Blitz DreamWorks Animation SKG, Inc.
  6/17/2013 02:50 PM
• 
  Bulls want to ride Abercrombie higher
  6/17/2013 12:01 PM