Costco Wholesale Corp. (COST)
Update 3/24/2017: COST gapped down sharply into unprofitable territory immediately after earnings were published, and continued to fall for a week before recovering a bit and falling into a sideways pattern, still unprofitable. I exited to avoid the risk of early assignment.
Shares declined by 6.0% over 21 days, or a -104% annual rate. The options position produced a -31.7% loss on debit for a -551% annual rate.
COST publishes earnings on Thursday after the closing bell.
I shall use the APR series of options, which trades for the last time 50 days hence, on April 21.
Implied volatility stands at 21%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.
COST’s IV stands in the 54th percentile of its annual range and the 68th percentile of its most recent broad movement.
The price used for analysis was $177.95.
|Premium:||$8.34||Expire OTM||iron fly|
The premium is 48% of the width of the position’s wings.
The risk/reward ratio is 1.4:1.
Decision for My Account
I have entered a position on COST as described above. The stock at the time of entry was priced at $178.04.
By Tim Bovee, Portland, Oregon, March 2, 2017