COST Collects Bear Notes After Earnings Miss

The equity is down over 15% year-to-date

Digital Content Manager
Mar 5, 2021 at 10:16 AM
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The shares of Costco Wholesale Corporation (NASDAQ:COST) are down 1.9% at $313.08 at last check, after the retail giant reported worse-than-expected fiscal second-quarter earnings. And while the company beat revenue estimates, it attributed the mixed results to higher spending on employee benefits and store sanitization during the Covid-19 pandemic, as well as investments on its supply chain to cut delivery times amid an online demand surge. 

The brokerage bunch did not take these results lightly. The security received no fewer than 11 price-target cuts this morning, including one from D.A. Davidson to $325 from $390. However, 17 of the 22 analysts in coverage still sport a "buy" or better rating on COST.

So far, this year has not been kind to Costco stock. Shares have been chopping lower since hitting a Dec. 1, all-time high of $388.07, slipping firmly below the once-supportive 60-day moving average in January. The security is now trading at its lowest level since July, and is staring at its third consecutive loss. Year-to-date, COST has shaved 15.3%.

Meanwhile, the options pits lean bearish, with puts popular. This is per the stock's 50-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 94% of readings from the past year. In other words, puts are being picked up at a faster-than-usual pace.

Drilling down to today's options activity, 14,000 calls and over 7,000 puts have been exchanged so far, which is five times the intraday average. Most popular is the monthly April 350 call, followed by the weekly 3/5 330-strike call. Buyers of the latter expect to see more upside for Costco stock by the end of the day, when these contracts expire.

Lastly, now could be a good time to weigh in on COST's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 31% sits higher than just 20% of all other readings in its annual range, suggesting options players are pricing in relatively low volatility expectations right now. 


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