Costco Wholesale Corporation (COST) Earnings Miss Dooms Options Bulls

Costco Wholesale Corporation's (NASDAQ:COST) earnings miss leaves recent call option buyers singing the blues

Mar 3, 2016 at 11:15 AM
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Although earnings season is winding down, there are still a number of notable names making waves on the earnings front. Costco Wholesale Corporation (NASDAQ:COST), for instance, is down 2.3% at $149.28, after the retailer's fiscal second-quarter results fell short of estimates. Meanwhile, today's post-earnings price action could have a recent batch of COST options traders kicking rocks.

Specifically, over the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), COST's 10-day call/put volume ratio has jumped to 1.66 from 0.68. What's more, the current ratio ranks in the 73rd annual percentile, meaning calls have been bought to open over puts at a faster-than-usual clip.

Echoing this call-skewed backdrop is COST's Schaeffer's put/call open interest ratio (SOIR) of 0.85. Not only does this show that calls outweigh puts among options set to expire in three months or less, but it rests lower than 62% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual toward COST.

Looking at the options that saw major changes to open interest during the past 10 sessions, the weekly 3/4 series has been in high demand, accounting for three of the four biggest increases. Among the popular options have been the 150- and 155-strike calls. Traders that may have purchased positions at these now out-of-the-money options can't be happy with COST's earnings reaction, with the contracts set to expire at tomorrow's close.

Analysts have so far been quiet following COST's earnings miss, but the stock could be in danger of bearish notes if it doesn't turn things around. Twelve of the 18 analysts that cover the stock call it at least a "buy," with none issuing "sell" recommendations. Plus, Costco Wholesale Corporation's (NASDAQ:COST) average 12-month price target is $168.33 -- a 12.8% premium to current levels, leaving the door open to potential price-target cuts.

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