Costco Wholesale Corporation (NASDAQ:COST) entered our portfolio on April 1, 2014, in a post titled “Go Long, Far and High with COST Calls“. On December 10, I wrote another piece on trading COST options in a post in which I provided a seven-month update on that April coverage.
In that December post, I maintained my bullish optimism on COST call options because of the strength that the stock has in trading above is 50 and 200-day moving averages and because of the strong retail trends of the holiday season. I completed that post by recommending that you buy the COST Apr 2015 145.000 call (COST150417C00145000) at an asking price of $3.70.
In two months, the shares of Costco have delivered impressive outperformance in line with previous gains. For instance, when I wrote that piece in December 2014, the shares of Costco were trading around $142.40 and the COST $145 call option had an asking price of $3.30. However, as at 2:05PM EST today, the shares of Costco have gained 5.67% to a $150.47 trading price. Most impressive is the fact that the options contract has increased by 77.02% to an asking price of $6.55.
The Reason Behind the Costco Rally
Shares of Costco have been rallying recently because of the strong retail trends from the holiday season. In fact, the stock soared to a 52-Week high of $156.85 on February 4. However, the second quarter (Q2 2015) results that the company posted yesterday appear to be somewhat less than impressive as the highlights below show.
Costco Wholesale reported second quarter earnings of $1.35 per share to beat the analysts’ consensus estimate of $1.17 per share and to mark the company’s biggest earnings beat in 13 year
The company reported revenue of $27.45B to mark a 6.4% year-over-year improvement but to underperform the consensus estimate of $27.65B
The company’s international sales was impacted by the strengthening dollar and lower fuel prices to record a 2% drop. However, domestic sales increased by a modest 4%; hence, the company’s total comparable store sales has increased by 2%
Costco’s membership sales also increased by 5.8%
How to Trade COST Options
The chart above shows how the shares of Costco have traded within the last one year. You’ll observe that the stock has had an impressive bullish ascent in the last 10 months before it started channeling in the last two month as the purple circle shows.
You’ll also observe that the stock is trading down after it failed to breakout above the $152 resistance point. However, you’ll notice that the stock currently trades above its 50 and 200-day moving averages and an RSI of 61.96 suggests that the buying action will soon commence on the stock again.
I am optimistic that shares of Costco Corporation will head back to the north and I recommend buying COST call options. I am particularly interested in the COST Oct 2015 155.000 call (COST151016C00155000) at an asking price of $5.40.
— Daily Option Alerts