Costco Wholesale (COST) 9/8/10 PriceWatch Alert With $54.89 Break Even

Posted: Wednesday, September 08, 2010 8:31 AM EDT
By: Market Intelligence Center Staff

Costco Wholesale (NASDAQ: COST) ended the last trading session at $58.64. So far the stock has hit a 52-week low of $53.41 and 52-week high of $62.12. Costco Wholesale stock has been showing support around 57.81 and resistance in the 59.41 range. Technical indicators for the stock are Bullish 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 '11 57.50 covered call for a net debit in the $54.89 area. That is also the break even stock price for this trade. This covered call has a 136 day duration, provides 6.39% downside protection and a 4.75% assigned return rate for a 12.76% 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 '12 37.50 Call and selling the Jan '11 57.50 call for an $18.35 debit. The trade has a 136 day life and would provide 4.76% downside protection and an 8.99% assigned return rate for a 24.00% annualized return rate (for comparison purposes only). Costco Wholesale has a current annual dividend yield of 1.40%. [WBA-Seven Summits Research]