Costco (COST) is a big box membership warehouse store. They have pretty good deals, but you have to buy a bunch of stuff. It’s great if you’re buying for a party, but do you really need a 24-pack of toilet paper if you live alone? But the place is always crowded; they seem to do a good business, at least at the store I go to. I thought it was particularly fascinating to see the lunch crowd last month. I don’t think of the Costco as a go-to place for lunch, but a lot of people seem to. It was packed.
COST showed up in April as I was browsing Yahoo stock screener for stocks with good analyst recommendations. So I decided to take the plunge with an Insurance Agent Trade.
On April 15, with the price of COST at about 112, I entered a trade, selling the July 105 Put for income, and buying the July 100 Put to offload risk. That gave me with a $5 Put spread for a net credit of $.60. With about 90 days until expiration, that gave me a maximum return of about 4.5%/month. Good company, good recommendations, good profit. And I would get that profit if COST went up, sideways, or even down a little.
But the thing about the Insurance Agent Trade is that if the stock goes up a bit, you can get out of the trade early, capturing most of the profit in half the time. This is a good thing.
COST had some ups and downs, but in early June, it jumped up to 118. This was enough to push me over my target profit and I closed the trade, buying back the options for a net payment of $.05. I sold the pair of options, waited for the price to fall, and I bought them back to close the trade.
The profit? 12.5% in 50 days or about 7.5% per month. A good trade!