Costco Wholesale (COST) PriceWatch Alert Could Hit 18.26% Return

Posted on Wednesday, September 03, 2008 8:07 AM

Costco Wholesale (NasdaqNM: COST) ended the last trading session at $68.26. 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 67.17 and resistance in the 69.99 range. Technical indicators for the stock are Neutral 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 a Jan '09 65 covered call (PRQ AM) for a net debit in the $60.86 area. That is also the break even stock price for this trade. This covered call has a 136 day duration, provides 10.84% downside protection and a 6.80% assigned return rate for an 18.26% 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 Jan '09 65 call (PRQ AM) for a $23.30 debit. The trade has a 136 day life and would provide 7.27% downside protection and a 7.30% assigned return rate for a 20.00% 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]