How one trader is hedging Costco
David Russell | email@example.com
optionMONSTER's Depth Charge monitoring program detected the purchase of about 2,500 November 100 puts for about $2.20. Similar amounts were sold in the November 97.50 puts for $1.38 and the November 95 puts for $0.87. Volume was more than 30 times the open interest in all three strikes, clearly indicating a new position.
Known as a bearish Christmas tree, the strategy is designed to leverage a small pullback in the big-box retailer. It will generate a credit of $0.05 and earn a maximum profit of $2.50 if COST closes between $95 and $97.50 on expiration.
The traders will be forced to buy shares below that range because of the short puts at the 95 strike. He or she probably owns the stock and would be willing to add to the position in the event of a pullback to that level. (See our Education section)
COST fell 0.43 percent to $101 yesterday but is up 5 percent in the last month. Shares hit an all-time high above $103 last week but have been drifting lower since.
Overall option volume was quadruple the daily average in yesterday's session. Puts accounted for more than 80 percent of the total, according to the Depth Charge.