Costco Wholesale Corporation (COST) Options Traders React to Weak August Sales

Options volume is surging as Costco Wholesale Corporation (NASDAQ:COST) sells off on weak August same-store sales

Josh Selway
Sep 1, 2016 at 12:01 PM
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Roughly two months ago, strong sales numbers for June sent retail stock Costco Wholesale Corporation (NASDAQ:COST) soaring. Since then, the stock has given back all of those gains -- and then some -- with the company's poorly received same-store sales for August helping to finally close the gap. The news has COST 3.2% lower at $156.83, and back in the red on a year-to-date basis. Meanwhile, COST options traders are responding in a big way, with volume running in the 98th annual percentile. 

Despite COST's slide, calls have the edge over puts today -- though volume for both is running at several times the respective intraday norms. The most popular option overall is the front-month September 160 call, with data hinting at a mix of buy- and sell-to-open activity. For buyers, the goal is for the shares to rebound back above $160 by expiration the night of Friday, Sept. 16, while sellers are betting on COST stock holding below the strike. 

On the put side, the September 155 strike has seen the most action, while the weekly 9/2 157.50 strike is close behind. It looks as if traders may be selling to close positions, possibly taking profits ahead of the respective expiration dates. 

Longer term, put buying has been the go-to strategy recently at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). COST has posted a 10-day put/call volume ratio of 1.57 across these exchanges, which tops 84% of the past year's readings. Furthermore, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.29 is just 5 percentage points from a 12-month high. This all points to an extremely unusual interest in COST put options of late. 

Outside the options pits, pessimism has actually been waning toward the shares. Specifically, short interest plummeted by 21% in the last two reporting periods. However, going by COST's average daily trading volumes, six days' worth of buying power is still on the sidelines. 

While today's sell-off puts Costco Wholesale Corporation (NASDAQ:COST) on the wrong side of breakeven for the year, the shares remain comfortably above their lows below $140, last touched in May. As such, analysts have remained upbeat, with 10 of 15 calling COST stock a "buy" or a "strong buy," and zero rating it a "sell." 

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