How to Profit if COST is Up or Down?

Dear Reader,

I’m sure you’ve heard of this company before, but I’m not sure that you know that they’re currently set up for a prime buying opportunity! Today we will be looking at Costco Wholesale Corp. stock symbol: COST.

Costco Wholesale Corporation sells high volumes of foods and general merchandise at discounted prices through membership warehouses. The company also operates e-commerce websites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.

Now take a look at the chart below.

Buy COST Stock

As the chart shows, in April 2023, the COST 1-Month Price, crossed above the 10-Month simple moving average (SMA).

Now, as you can see, the 1-Month Price is still above the 10-Month SMA. That means the bullish trend is still in play!

Now, since COST’s Monthly Price is currently trading above the 10-Month SMA and will likely rally from here, let’s use the Hughes Optioneering calculator to look at the potential returns for a COST call option spread.

Built in Profit Potential

For this option spread, the calculator analysis below reveals the cost of the spread is $657 (circled). The maximum risk for an option spread is the cost of the spread.

The analysis reveals that if COST stock is flat or up at all at expiration the spread will realize a 52.2% return (circled).

And if COST stock decreases 7.5% at option expiration, the option spread would make a 52.2% return (circled).

Due to option pricing characteristics, this option spread has a ‘built in’ 52.2% profit potential when the trade was identified*.

The prices and returns represented below were calculated based on the current stock and option pricing for COST on 5/20/2024 before commissions.

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Wishing You the Best in Investing Success,