Costco Wholesale (COST) PriceWatch Alert At $64.61 Break Even

Posted on Friday, August 29, 2008 8:07 AM

Costco Wholesale (NasdaqNM: COST) closed yesterday at $67.81. So far the stock has hit a 52-week low of $56.09 and 52-week high of $75.23. Costco Wholesale stock has been showing support around 66.44 and resistance in the 68.62 range. Technical indicators for the stock are Bearish and S&P gives COST a neutral 3 STAR (out of 5) hold rating. COST appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at an Oct '08 67.50 covered call (PRQ JU) for a net debit in the $64.61 area. That is also the break even stock price for this trade. This covered call has a 50 day duration, provides 4.72% downside protection and a 4.47% assigned return rate for a 32.65% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the COST Jan '10 40 Call (YRP AH) and selling the Oct '08 67.50 call (PRQ JU) for a $26.85 debit. The trade has a 50 day life and would provide 1.42% downside protection and a 2.42% assigned return rate for an 18.00% annualized return rate (for comparison purposes only). Costco Wholesale has a current annual dividend yield of 0.96%. [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]