One Put, One Call Option To Know About for Costco Wholesale (COST)

May 12 2014, 11:25am CDT | by

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is Costco Wholesale Corp (NASD: COST). So this week we highlight one interesting put contract, and one interesting call contract, from the June expiration for COST.

The put contract our YieldBoost algorithm identified as particularly interesting, is at the $114 strike, which has a bid at the time of this writing of $1.51. Collecting that bid as the premium represents a 1.3% return against the $114 commitment, or a 10.5% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

Click here to find out the Top YieldBoost COST Puts »

Selling a put does not give an investor access to COST’s upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless Costco Wholesale Corp sees its shares fall 2.2% and the contract is exercised (resulting in a cost basis of $112.49 per share before broker commissions, subtracting the $1.51 from $114), the only upside to the put seller is from collecting that premium for the 10.5% annualized rate of return.

Interestingly, that annualized 10.5% figure actually exceeds the 1.2% annualized dividend paid by Costco Wholesale Corp by 9.3%, based on the current share price of $116.55. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to lose 2.19% to reach the $114 strike price.

Always important when discussing dividends is the fact that, in general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of Costco Wholesale Corp, looking at the dividend history chart for COST below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 1.2% annualized dividend yield.

Turning to the other side of the option chain, we highlight one call contract of particular interest for the June expiration, for shareholders of Costco Wholesale Corp (NASD: COST) looking to boost their income beyond the stock’s 1.2% annualized dividend yield. Selling the covered call at the $118 strike and collecting the premium based on the $1.59 bid, annualizes to an additional 10.8% rate of return against the current stock price (this is what we at Stock Options Channel refer to as the YieldBoost), for a total of 12% annualized rate in the scenario where the stock is not called away. Any upside above $118 would be lost if the stock rises there and is called away, but COST shares would have to climb 1.2% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 2.6% return from this trading level, in addition to any dividends collected before the stock was called.

Click here to find out the Top YieldBoost COST Calls »

The chart below shows the trailing twelve month trading history for Costco Wholesale Corp, highlighting in green where the $114 strike is located relative to that history, and highlighting the $118 strike in red:

The chart above, and the stock’s historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the June put or call options highlighted in this article deliver a rate of return that represents good reward for the risks. We calculate the trailing twelve month volatility for Costco Wholesale Corp (considering the last 251 trading day COST historical stock prices using closing values, as well as today’s price of $116.55) to be 15%.

In mid-afternoon trading on Monday, the put volume among S&P 500 components was 651,182 contracts, with call volume at 1.19M, for a put:call ratio of 0.55 so far for the day. Compared to the long-term median put:call ratio of .65, that represents very high call volume relative to puts; in other words, buyers are preferring calls in options trading so far today.
Find out which 15 call and put options traders are talking about today./>

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Breastfeeding linked to lower risk of postnatal depression
London, Aug 22 (IANS) A new study involving 10,000 mothers has shown that women who breastfed their babies were at significantly lower risk of postnatal depression than those who did not.
 
 
Pakistan media flays India for axing talks
Islamabad, Aug 22 (IANS) Two Pakistani newspapers Friday denounced India's decision to call off talks between their foreign secretaries, saying it had dealt "a serious blow" to the bilateral peace process.
 
 
Novel way to monitor drone's parametres
New York, Aug 22 (IANS) Drones are the future of home delivery and surveillance but to achieve this consistently, they will have to tackle high winds and other uncertainties like depletion of fuel.
 
 
Moon soil charged by electric spark?
Washington, Aug 22 (IANS) High-energy particles from solar storms may have electrically charged the soil in the moon's frigid polar regions, altering its properties, a study suggests.
 
 
 

Latest from the Network

David Walliams has naked picture of Lara Stone at home
David Walliams keeps a saucy picture of Lara Stone on the wall of their mansion. The couple - who married in 2010 - don't have many photographs on the walls of their London home apart from a black and white print of the...
Read more on Celebrity Balla
 
Daniel Radcliffe learning Japanese
London, Aug 22 (IANS) Actor Daniel Radcliffe says he is learning to speak Japanese but is finding it tough. "I just started learning Japanese. It's super hard, but fascinating," femalefirst.co.uk quoted the British...
Read more on Celebrity Balla
 
Rihanna obtains restraining order
Los Angeles, Aug 22 (IANS) Singer Rihanna has obtained a restraining order against a man who was caught eyeing her Hollywood Hills property here last week. The unidentified man was caught hanging around her house for...
Read more on Celebrity Balla
 
Britney Spears 'fed up' of father's control
Los Angeles, Aug 22 (IANS) Singer Britney Spears is allegedly "fed up" of her father Jamie Spears controlling her finances. The 32-year-old's personal and professional affairs have been controlled by Jamie and Andrew...
Read more on Celebrity Balla
 
Taylor Swift 'horrified' to see John Mayer
Los Angeles, Aug 22 (IANS) Country musicianTaylor Swift was shocked to see her former boyfriend John Mayer at the same restaurant. The duo split in 2010 following a brief romance and the 24-year-old apparently didn't...
Read more on Celebrity Balla
 
Breastfeeding linked to lower risk of postnatal depression
London, Aug 22 (IANS) A new study involving 10,000 mothers has shown that women who breastfed their babies were at significantly lower risk of postnatal depression than those who did not. The study, by researchers in...
Read more on Apple Balla
 
Pakistan media flays India for axing talks
Islamabad, Aug 22 (IANS) Two Pakistani newspapers Friday denounced India's decision to call off talks between their foreign secretaries, saying it had dealt "a serious blow" to the bilateral peace process. "The...
Read more on Ad Balla
 
Amy Winehouse sculpture to be unveiled in London
London, Aug 22 (IANS) A sculpture to commemorate Amy Winehouse is to be unveiled at Camden market in north London, near the singer's last home. The memorial, which has been designed by Scott Eaton, will be a life-...
Read more on Celebrity Balla
 
Mariah Carey 'heartbroken' by split from husband?
Los Angeles, Aug 22 (IANS) Singer Mariah Carey is said to be "heartbroken" by her split from husband Nick Cannon. Cannon, the host of "America's Got Talent" has confirmed he and Carey have been living apart "for a few...
Read more on Celebrity Balla