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Costco Wholesale (NASDAQ: COST - option chain) stock is dropping today after the company reported a third-quarter profit of $209.6 million or 48 cents per share. Analysts were looking for a profit of 53 cents per share. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on COST.This morning, COST opened at $47.94. So far today the stock has hit a low of $46.54 and a high of $48.91. As of 11:40, COST is trading at $47.81, down $1.02 (-2.1%). The chart for COST looks neutral and S&P gives COST a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $52.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in seven weeks as long as COST is below $52.50 at July expiration. Costco would have to rise by more than 9% before we would start to lose money. Learn more about this type of trade here.
COST hasn't been above $50 since January and shown resistance around $50 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in COST.
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