COST Analysis

Costco Wholesale Corp. (COST)

Update 1/5/2017: COST rose sharply after earnings were published, retraced a bit, and then resumed its rise. I got out quickly for a loss, figuring there was no way this position would improve.

In part, my willingness to exit so rapidly was to free funds for earnings season, which begins next week.

Shares rose by 2.7% over two days, or a +494% annual rate. The options position produced a 17.1% loss on debit for a -3,129% annual rate

COST is showing implied volatility sufficiently high to support a trade.

I shall use the FEB series of options, which trades for the last time 45 days hence, on Feb. 17.

Implied volatility stands at 21%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.

VIX’s IV stands in the 42nd percentile of its annual range and the 71st percentile of its most recent broad movement.

The price used for analysis was 159.99.

Trade structure:

COST FEB iron condor          
Net debit: 2.61            
  Calls   Puts
Direction long breakeven short   short breakeven long
Strike 165 162.61 160 150 147.39 145
Odds exp. OTM 74.2% 56.2% 76.2% 85.8%
Delta 28 46 22 12

The premium is 52% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

Decision for My Account

I have entered a position on COST as described above, with the stock priced at $58.80.

— Tim Bovee, Portland, Oregon, Jan. !#, 2017

2 thoughts on “COST Analysis

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